Ho Bee Land (HOBEE SP) - RHB Invest 2016-10-06: The Metropolis fully leased with renewals at $7.50 psf

Ho Bee Land (HOBEE SP) - RHB Invest 2016-10-06: The Metropolis fully leased with renewals at $7.50 psf HO BEE LAND LIMITED H13.SI

Ho Bee Land (HOBEE SP) - The Metropolis fully leased with renewals at $7.50 psf

  • Despite a gloomy office market with a glut of new office space coming on-stream, Ho Bee Land’s office property in Buona Vista, The Metropolis, is fully leased with renewals at $7.50 psf per month against average portfolio rents of $6.50 psf per month. Built at a cost of under $800m and completed in 2013, the property is valued at $1.64bn as of end 2015, generating gains of more than $800m for the group.
  • Ho Bee’s 6 office property acquisitions in London, made in the course of the last 3 years at a cost of £600m, have further bolstered the group’s gross rental income to $135m per annum. While Brexit has resulted in translation losses due to fluctuations in the exchange rate, the London portfolio is backed by solid blue-chip tenants and an average lease term to expiry of more than 5 years. Sterling pound-denominated borrowings have further mitigated the impact of the recent £ weakness. 
  • Ho Bee’s strategy to build a business model with a strong base of recurring income has worked out very well and the group is open to options to unlock value from its $3bn portfolio such as a REIT transaction. 
  • The group remains cautious on the local residential market given the impact of the cooling measures on foreigner demand and has fully sold down its exposure on the mainland. It is currently left with unsold units across 3 developments in Sentosa, Turquoise, Seascape and Cape Royale, of which 70% has been leased out at $3.50 to $4.00 psf per month. 
  • Having completed 2 developments in Australia this year, the group is on the lookout for other development opportunities Down Under. 
  • In China, the completion of its Shanghai project and commencement of profit recognition of its Zhuhai project from 2016 onwards, both in partnership with Yanlord, will drive profit growth on the development front.
  • Ho Bee has the best track record among its real estate peers, with its NAV/share compounding at a CAGR of 18% over the last decade. 
  • We like Ho Bee for its management’s execution track record, and continue to rate the stock a BUY. Our TP of SGD2.68 is pegged at a 35% discount to its NAV of $4.13/share.

Goh Han Peng RHB Invest | http://www.rhbinvest.com.sg/ 2016-10-06
RHB Invest SGX Stock Analyst Report BUY Maintain BUY 2.68 Down 2.750