New Reporter
20-02-23, 08:47
Ho Bee Land’s twin-engine growth strategy propels high ROEs
Over 80% of its business was in residential development but the group decided, over a decade ago to strengthen its recurring income business from investment properties.
Feb 20, 2023
HO Bee Land : H13 0% stands out among Singapore-listed property groups for its relatively high return on equity (ROE) numbers. In nine out of the past 10 years, the group’s ROE - which measures the rate of return on the capital provided by shareholders - has been at least 7.5 per cent.
Chief executive officer Nicholas Chua credits this track record to greater diversification, both geographically as well as in property investment: “We have prepared ourselves by developing our twin engines of growth. Our recurring income stream is sustainable as our tenants have good covenants. We will also focus on driving good cash flows and maintaining a strong balance sheet.”
Ho Bee had previously been “predominantly in the development space”, said Chua, adding that more than 80 per cent of the business was in residential development at one point. But it decided, over a decade ago, to strengthen its recurring income business from investment properties.
“Property development is quite cyclical, which means that profits are lumpy, Chua said in an interview in late November. “To smoothen out our profits, as well as to give us more resilience, we came up with the twin-engine approach whereby we have recurring income, which is from investment assets, as well as development income,” said Chua, who took over the CEO post on Jan 1, 2022, from his father, Chua Thian Poh. The senior Chua remains as the group’s executive chairman.
https://i.imgur.com/IzOza0o.png
Ho Bee’s ROE is expected to fall in FY2022. The group flagged in December that it expects a “significant decrease”, year on year, in second-half and full-year net profit.
This was due largely to foreign exchange volatility and rising interest rates. The latter has led to higher capitalisation rates used for valuations of its London investment properties, and higher interest expenses.
Revenue and operating profit, however, increased, due to higher sales of development properties in Singapore and Australia, as well as higher rental income from investment properties in Singapore and London – demonstrating, once again, the resilience of the twin-engine strategy.
Building recurring income
The first major milestone in the group’s transformation was in 2010, when it clinched a commercial site next to Buona Vista MRT Station in Singapore. The Metropolis, with 1.09 million square feet in net lettable area, mostly offices, was completed in 2013. In the following year, Ho Bee’s rental income jumped to S$99.6 million from S$14.4 million in 2012.
Also in 2013, Ho Bee expanded the recurring income strategy to the United Kingdom. It now has eight office assets worth £2.1 billion as at end-June 2022: seven in Central London and one in South London. In 2021, Ho Bee’s annual rental income was S$223.7 million.
The group is expanding its investment properties portfolio to the biomedical science (BMS) field. Adjacent to The Metropolis, it is developing Elementum, which will have 312,000 sq ft of business park space, 50,000 sq ft of offices and 10,000 sq ft of retail space. Elementum is slated for completion in Q4 this year.
“We are currently in advanced negotiations with a few key tenants. BMS is a growing sector. We think that it’s very resilient; tenants are fairly sticky once they come in,” said Chua. Word on the street is that the monthly asking rent is S$7.20 per sq ft (psf) for the business park space and S$8.50 psf for the offices.
Ho Bee also took to leasing out unsold units in its Sentosa Cove condominium projects after the Additional Buyer’s Stamp Duty (ABSD) introduced in 2011 hit sales in the upscale waterfront residential district. The ABSD was highest for foreign buyers, who made up about half of buyers for the group’s Sentosa Cove projects at one time.
Revival of interest in Sentosa
The group began leasing units at its Turquoise condo in 2011, followed by the Seascape project in 2012 and Cape Royale in 2013. All three are joint-venture projects.
Buying interest began to improve in early 2021. Chua said: “In the midst of Covid-19, people realised they need more space, and our apartments in Sentosa are quite spacious, in a natural, low-density environment with a resort-living ambience.”
Ho Bee relaunched Turquoise in early 2021, followed by Cape Royale in 2022. Singapore citizens and permanent residents now make up about 80 per cent of buyers.
Market watchers estimate Ho Bee could have sold around 80 units across Cape Royale, Turquoise and Seascape last year for close to S$400 million.
Since it clinched the Cape Royale site in early 2008, Ho Bee has not managed to buy any residential development sites in Singapore.
New strategy Down Under
It has been more active in the Australia housing market, which it entered in 2012. Initially, Ho Bee developed apartment projects along Surfers Paradise on the Gold Coast and in Melbourne. Much of the demand then was from foreigners.
“In response to policy changes in Australia in 2016 and 2017 – stamp duties were raised for foreign buyers and lending tightened for home buyers, especially foreigners – we shifted our strategy to cater to local Australians. We found that, predominantly, they like landed housing. So we reverse-engineered and went towards this,” said Chua.
Ho Bee now appoints consultants to master plan the area before putting in infrastructure such as roads, bridges, sewerage, water and electricity. It then carves out land parcels for buyers to build their own houses.
“Since 2019, we have acquired a pipeline of close to 5,000 land lots in Queensland and Victoria. We expect these projects to contribute positively to our bottom line in the next few years,” said Chua.
Based on its close at S$2.36 on Feb 17, Ho Bee trades at 39.5 per cent of its S$5.97 net asset value per share as at Jun 30, 2022. Chua Thian Poh owned 75.6 per cent of the company’s shares as at Dec 31, 2022.
Since FY2017, the group has paid annual dividends of 10 Singapore cents per share. This would translate to a dividend yield of 4.2 per cent.
Asked why investors should buy Ho Bee’s stock, Chua said: “I think we’ve proven over the different cycles that we are nimble, we always do what’s best for the company, and sometimes we take difficult decisions to pivot...
“At a time of strong headwinds, I think we offer some stability. We want to be in a position of strength to capture the opportunities that may come over the next 12 to 18 months. We want Ho Bee to be a lasting enterprise that is continually successful, and also able to give back to society at the same time.”
https://www.businesstimes.com.sg/companies-markets/reits-property/ho-bee-lands-twin-engine-growth-strategy-propels-high-roes
Over 80% of its business was in residential development but the group decided, over a decade ago to strengthen its recurring income business from investment properties.
Feb 20, 2023
HO Bee Land : H13 0% stands out among Singapore-listed property groups for its relatively high return on equity (ROE) numbers. In nine out of the past 10 years, the group’s ROE - which measures the rate of return on the capital provided by shareholders - has been at least 7.5 per cent.
Chief executive officer Nicholas Chua credits this track record to greater diversification, both geographically as well as in property investment: “We have prepared ourselves by developing our twin engines of growth. Our recurring income stream is sustainable as our tenants have good covenants. We will also focus on driving good cash flows and maintaining a strong balance sheet.”
Ho Bee had previously been “predominantly in the development space”, said Chua, adding that more than 80 per cent of the business was in residential development at one point. But it decided, over a decade ago, to strengthen its recurring income business from investment properties.
“Property development is quite cyclical, which means that profits are lumpy, Chua said in an interview in late November. “To smoothen out our profits, as well as to give us more resilience, we came up with the twin-engine approach whereby we have recurring income, which is from investment assets, as well as development income,” said Chua, who took over the CEO post on Jan 1, 2022, from his father, Chua Thian Poh. The senior Chua remains as the group’s executive chairman.
https://i.imgur.com/IzOza0o.png
Ho Bee’s ROE is expected to fall in FY2022. The group flagged in December that it expects a “significant decrease”, year on year, in second-half and full-year net profit.
This was due largely to foreign exchange volatility and rising interest rates. The latter has led to higher capitalisation rates used for valuations of its London investment properties, and higher interest expenses.
Revenue and operating profit, however, increased, due to higher sales of development properties in Singapore and Australia, as well as higher rental income from investment properties in Singapore and London – demonstrating, once again, the resilience of the twin-engine strategy.
Building recurring income
The first major milestone in the group’s transformation was in 2010, when it clinched a commercial site next to Buona Vista MRT Station in Singapore. The Metropolis, with 1.09 million square feet in net lettable area, mostly offices, was completed in 2013. In the following year, Ho Bee’s rental income jumped to S$99.6 million from S$14.4 million in 2012.
Also in 2013, Ho Bee expanded the recurring income strategy to the United Kingdom. It now has eight office assets worth £2.1 billion as at end-June 2022: seven in Central London and one in South London. In 2021, Ho Bee’s annual rental income was S$223.7 million.
The group is expanding its investment properties portfolio to the biomedical science (BMS) field. Adjacent to The Metropolis, it is developing Elementum, which will have 312,000 sq ft of business park space, 50,000 sq ft of offices and 10,000 sq ft of retail space. Elementum is slated for completion in Q4 this year.
“We are currently in advanced negotiations with a few key tenants. BMS is a growing sector. We think that it’s very resilient; tenants are fairly sticky once they come in,” said Chua. Word on the street is that the monthly asking rent is S$7.20 per sq ft (psf) for the business park space and S$8.50 psf for the offices.
Ho Bee also took to leasing out unsold units in its Sentosa Cove condominium projects after the Additional Buyer’s Stamp Duty (ABSD) introduced in 2011 hit sales in the upscale waterfront residential district. The ABSD was highest for foreign buyers, who made up about half of buyers for the group’s Sentosa Cove projects at one time.
Revival of interest in Sentosa
The group began leasing units at its Turquoise condo in 2011, followed by the Seascape project in 2012 and Cape Royale in 2013. All three are joint-venture projects.
Buying interest began to improve in early 2021. Chua said: “In the midst of Covid-19, people realised they need more space, and our apartments in Sentosa are quite spacious, in a natural, low-density environment with a resort-living ambience.”
Ho Bee relaunched Turquoise in early 2021, followed by Cape Royale in 2022. Singapore citizens and permanent residents now make up about 80 per cent of buyers.
Market watchers estimate Ho Bee could have sold around 80 units across Cape Royale, Turquoise and Seascape last year for close to S$400 million.
Since it clinched the Cape Royale site in early 2008, Ho Bee has not managed to buy any residential development sites in Singapore.
New strategy Down Under
It has been more active in the Australia housing market, which it entered in 2012. Initially, Ho Bee developed apartment projects along Surfers Paradise on the Gold Coast and in Melbourne. Much of the demand then was from foreigners.
“In response to policy changes in Australia in 2016 and 2017 – stamp duties were raised for foreign buyers and lending tightened for home buyers, especially foreigners – we shifted our strategy to cater to local Australians. We found that, predominantly, they like landed housing. So we reverse-engineered and went towards this,” said Chua.
Ho Bee now appoints consultants to master plan the area before putting in infrastructure such as roads, bridges, sewerage, water and electricity. It then carves out land parcels for buyers to build their own houses.
“Since 2019, we have acquired a pipeline of close to 5,000 land lots in Queensland and Victoria. We expect these projects to contribute positively to our bottom line in the next few years,” said Chua.
Based on its close at S$2.36 on Feb 17, Ho Bee trades at 39.5 per cent of its S$5.97 net asset value per share as at Jun 30, 2022. Chua Thian Poh owned 75.6 per cent of the company’s shares as at Dec 31, 2022.
Since FY2017, the group has paid annual dividends of 10 Singapore cents per share. This would translate to a dividend yield of 4.2 per cent.
Asked why investors should buy Ho Bee’s stock, Chua said: “I think we’ve proven over the different cycles that we are nimble, we always do what’s best for the company, and sometimes we take difficult decisions to pivot...
“At a time of strong headwinds, I think we offer some stability. We want to be in a position of strength to capture the opportunities that may come over the next 12 to 18 months. We want Ho Bee to be a lasting enterprise that is continually successful, and also able to give back to society at the same time.”
https://www.businesstimes.com.sg/companies-markets/reits-property/ho-bee-lands-twin-engine-growth-strategy-propels-high-roes