Outlook for Ho Bee Land bullish despite weak property market

Supply glut looms but the Metropolis is not short of lessees.

Compared with its real estate peers, Ho Bee has the best track record with its Net Asset Value (NAV)/ share compounding at a CAGR of 18% over the last decade, said RHB.

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, RHB notes that the company's London portfolio is backed by solid blue-chip tenants and an average lease term to expiry of more than 5 years.

RHB added that 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," said RHB.

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, RHB believes that 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.