SINGAPORE (Apr 17): Heeton Holdings is a real estate company focused on property development, investment and management. It has a diverse real estate portfolio comprising quality residential and commercial properties, and has rapidly expanded its geographical footprint across Singapore, Thailand, Australia, Japan, and the UK. Since 2011, Heeton has further diversified its portfolio into the hospitality asset class, with the vision of becoming a strategic player in the international hospitality sector.
What are Heeton’s business mix and segments? Which are the key revenue/growth drivers?
Heeton operates three business segments:
Property development (17.0%) — As a boutique property developer, it develops distinctive, quality residential properties in major cities in the world, including Singapore, Bangkok and London. It started to venture into township development with projects in Leeds, UK; and Gaobeidian, China.
Property investment (17.3%) — The Heeton Group manages a stable portfolio of investment properties ranging from hotels and residences to commercial properties including shopping malls and serviced offices. Hospitality assets are currently the group’s key focus area and it has a portfolio of 13 operating hotels across the UK, Japan and Thailand.
Hospitality (63.7%) — This segment covers hotel operational income, which is derived from Heeton managing either hotel operations under a franchise or a hotel of its own brand.
We expect the hotel development and management business to continue to be the key revenue driver for the group as we continue to look for opportunities to expand our hospitality portfolio.
Heeton was primarily focused on the development of residential properties. In 2011, there was a shift in focus to hospitality properties, with strong focus on the UK. Why so?
Macroeconomic volatility and risks, and policy changes by the Singapore government such as the implementation of cooling measures have created challenges for the property market. Hence, we decided to branch out into the hospitality sector as it offers a stable long-term source of recurring income for the group. Nevertheless, we will continue to identify opportunities for development projects.
We did not set out to focus on the UK. Rather, it was a market that we were familiar with, given our two residential development properties in the UK, namely the 15-unit Britton and the 14-unit Earlington in London. This gave us a reasonably good understanding of the UK property sector and a network of business contacts to enter into the UK hospitality segment.
With Covid-19 and Brexit, what are your views on the hospitality landscape in the UK?
We expect Covid-19 and Brexit to have an impact on the UK’s visitor traffic from Europe. However, we expect this to be mitigated by the continued strength in international tourism in the long term. According to UK-based market research company Euromonitor, London was ranked the third most visited city in the world in 2019 with estimated arrivals of over 19.6 million.
We typically look for acquisition targets that are strategically located in the nexus of business and tourism activities, as well as in countries or areas with redevelopment and/or rejuvenation plans, supportive government policy and which possess value-adding opportunities. Amidst these developments, we will remain vigilant and judicious in our selection of investment opportunities.
Could you elaborate on your hospitality investment strategies and how they have evolved in recent years?
We typically look for acquisition targets that are strategically located in the nexus of business and tourism activities, as well as in countries or areas with redevelopment and/or rejuvenation plans, supportive government policy and which possess value-adding opportunities.
The markets where our hospitality assets are situated, the UK, Japan and Thailand, are destinations with high international tourist traffic. Nevertheless, we continue to be on the lookout for new markets with strong potential in order to ride on new growth trajectories.
You are venturing into township developments with your projects in Leeds, UK; and Gaobeidian, China. Could you share more about your direction in this segment?
There is a growing appeal in township developments as they have the ability to generate a critical mass of demand and grow value due to their scale and their ability to integrate a mix of uses, such as shopping, education and entertainment facilities. The presence of residential and commercial spaces is complementary to each other and will accelerate development as both sectors create demand for each other. As a result, we are able to leverage on such synergies for exponential growth.
In addition, townships are an attractive business investment as diversification via a mix of commercial and residential properties helps balance market risks.
What new markets are you exploring?
We are constantly looking at new markets to expand our footprint. At the moment, apart from exploring opportunities within the UK, we are also looking at opportunities in Europe and Asia. We will update our shareholders as and when appropriate.
Typically, how are your development projects financed?
We typically finance our acquisitions and investments through a mix of internal funds and/or bank borrowings. As at Dec 31, 2019, we have cash and cash equivalents of $116.9 million, which gives us an ample war chest to pursue our expansion.
What is Heeton’s strategic direction in the local property development segment?
Moving into 2020, we believe that local property development could continue to be challenging due to the property glut which, by some estimates, could take years to ease. Hence, we will be more cautious and selective in our land acquisitions, focusing on the value and quality of the developments. In some instances, we will explore joint ventures and partnerships for taking on certain projects in order to share credentials and expertise and spread risks.
In view of the upcoming 2020 ABSD [additional buyer’s stamp duty], have you seen a significant pick-up in sales in recent months? How will you drive sales in the current situation of a property glut?
Demand in the residential property market strengthened in the second half of 2019. There was strong transaction volume in the third quarter — 3,628 private residential units were launched, out of which 3,281 were sold, reflecting a 90.4% take-up rate, according to data from URA. The healthy performance is encouraging for developers and raises hope for a more stable market amidst the current property glut and the upcoming 2020 ABSD.
To mitigate the impact of the property glut and the 2020 ABSD, we will leverage on our in-house design resources to raise value and remain competitive; tap on our marketing expertise to raise the visibility of Heeton’s properties and leverage on global investors’ interests in Asian real estate to drive sales.
What is Heeton’s value proposition to its shareholders and potential investors?
What Heeton offers is sustainable value and growth in its business. We believe in building a business that is sustainable over the long term, guided by a balanced mix of operational, corporate, community and environmental considerations.
In line with achieving sustainability, we are building a quality portfolio of investment properties that are able to generate stable recurring income, alongside a strong property development portfolio in Singapore and overseas.
Our prudent financial management and access to diversified funding sources, supported by an experienced management team with in-depth knowledge of the property and hospitality industries, put us in good stead in navigating challenges that may arise.
Lastly, Heeton stays connected to new development opportunities in both new markets such as Bhutan and China as well as sectors such as township development, and is well-positioned to tap into these opportunities due to its reputation for distinction and quality.
Emelia Tan is a research analyst with SGX