http://www.businesstimes.com.sg/prem...o-bee-20140210

Published February 10, 2014

TOPLINE

Life after Sentosa Cove for Ho Bee

The Metropolis provides a strong recurring income base while London, Australia acquisitions reduce concentration risk in China, chairman Chua Thian Poh tells KALPANA RASHIWALA


HO Bee Land, formerly Ho Bee Investment, is probably most associated with Sentosa Cove, having developed more homes in the upscale waterfront residential district than any other developer. The bumper profits reaped from its projects there made it a stockmarket darling in 2006-2010.

Following the global financial crisis (GFC) in 2008, the developer has been focusing on building a strong recurring income base from property investment. It sold off fringe investment properties here and bought a site in 2010 next to Buona Vista MRT Interchange Station, which it has developed into a 1.08 million square foot project with two office towers called The Metropolis.

"GFC was an experience that made us rethink our strategy of just focusing on our development engine for growth," chairman Chua Thian Poh tells BT. "Our development model was based on rapid recycling of capital through pre-sales.

"We decided that it was equally important to develop our investment engine as well for recurring income. The investment income will help smoothen out our lumpy earnings and more importantly, act as a stabiliser in times of crisis."

Looking ahead, Mr Chua, who is also CEO, reckons the outlook for the Republic's residential market will be "very bleak" for the next two to three years, given looming oversupply and various property cooling measures. "If we had just carried on doing development, today we would not have these two office blocks," he declares in his new office at The Metropolis.

Completed last year, the Green Mark Platinum project is now more than 92 per cent let. It is also a showcase of Ho Bee's support for the arts, with sculptures by Ju Ming of Taiwan, Gao Xiao Wu and Zhu Wei of China, and Fernando Botero of Colombia.

"With the completion of The Metropolis, we have built up strong recurrent income to act as a backstop for earnings growth during the next two or three difficult years," says Mr Chua.

Also augmenting recurring income is rental income from leasing unsold units in the group's last three Sentosa Cove condo projects. Although Ho Bee did roaring sales in the district for earlier projects, activity in the luxe market has not recovered after the crisis - unlike the spectacular mass-market boom.

Last May, Ho Bee re-entered London and picked up an office block near Southwark Bridge in the Bankside locale, capitalising on the weak pound. A government tenant locked in till September 2018 ensures net rental yield of more than 6 per cent. Rose Court, an 11-storey freehold office building near the Thames, offers prospects of strong positive rental reversion. When the lease expires in 2018, the group plans to refurbish Rose Court and possibly convert some space to residences, especially on the top floor, subject to planning approval to capitalise on scenic views.

Located near Shakespeare's Globe, Rose Court itself has the famous Rose Theatre in its basement. The remains of the original Elizabethan theatre were discovered in 1989 during building excavations for the Rose Court project and preserved. Rose Theatre is owned by a heritage group.

While building recurring income is Ho Bee's priority, it is not ditching the property development business. "We are expecting development income from China and Australia to boost our earnings from 2015/2016 onwards," says Mr Chua.

Down Under, the group expects to launch this weekend a 185-unit project in Melbourne's Doncaster area, which is popular with Asians. Pearl, next to a Westfield shopping mall, will comprise nine townhouses and 176 apartments, mostly one and two-bedders. Prices are expected to start from around A$325,000 (S$369,335) for a one-bedder (679 sq ft) and A$438,000 for a two-bedder (819 sq ft). The areas are inclusive of balcony and terrace areas.

Later this year, the group plans to launch its first Gold Coast project, Rhapsody, a 41-storey development with 223 apartments (again mostly one and two-bedders). "Our development will be less than 50 metres from a light rail station that will be operational around the middle of this year," says Mr Chua.

The light rail line also extends to another site in Broadbeach where it plans to build a commercial and residential project. The site is next to Pacific Fair Shopping Centre as well as the new light rail station (integrated with a bus terminal). The Broadbeach project is at planning stage, as is the group's third Gold Coast project at 180 Ferny Avenue, near the Rhapsody site.

The A$24-49 per square foot per plot ratio Ho Bee paid for the four freehold Australian sites in 2012-2013 is cheap compared with Singapore. "In Australia, land cost is relatively low as a percentage of development cost. Moreover, we went in at a time when the market was quite depressed," says Mr Chua. "Gold Coast is a boom-and-bust place. (Property prices) can go up and come down very dramatically."

The Gold Coast is attracting mainland Chinese. In addition, Ho Bee's projects capitalise on the shortage of one and two-bedroom apartments in the market. "The Australian dollar has also come off quite a bit, which makes buying property there more affordable," Mr Chua adds, noting also that the 2018 Commonwealth Games would be held there.

Ho Bee's diversification into London and Australia serves to reduce concentration risk in China, where it has three joint venture developments in which initial phases are under construction. In Shanghai's Qingpu District, where the group owns 40 per cent of a 1,173-unit residential project, marketing will begin towards year-end for the first phase (620 units).

The group also has 40 per cent interest in a project in Nanhu Eco City in Tangshan. Soft marketing for the first phase began late last year. Construction is under way for the first three phases (totalling 990 apartments). To be built over seven phases, the project will have 1,867 apartments and a small retail component.

In Zhuhai, Ho Bee owns 20 per cent of a 3,600-unit residential development to be built in four phases. The launch of the first phase of 1,000 homes is expected to start towards year-end.

Looking ahead, Mr Chua wants to reap returns from these projects before putting more money into China, to manage concentration risks. For Australia, Ho Bee continues to look for development sites, primarily residential, and will stick to Gold Coast and Melbourne in the short term, he adds. In London, it makes sense to look for investment properties, most likely commercial buildings, given the attractive positive carry - the spread between property yield and cost of debt.

Mr Chua says that the group would re-enter the Singapore residential market when the opportunity arises. It is also open to further commercial property projects here. "We are in a good position now to seize opportunities as our gearing (as at end-September 2013) is only 0.19 time. In future, we'll have twin engines: development and property investment.

"The development engine will be more turbo; in good times, we get higher profits. But the investment income ... when you go into a storm, it stabilises the company."

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