SINGAPORE (June 22): Maybank KimEng is raising Ho Bee Land’s FY18-20 EPS by 7-22% after incorporating the developer’s recent acquisition of Ropemaker Place in the UK.
Maybank said the deal puts Ho Bee’s conservative balance sheet to work and should enhance its recurring EBIT by 39%. And at a 7% discount to the vendor’s asking price and with yields at almost 50bps higher than prime office yields in the same locality, the price paid appears reasonable, added Maybank.
After snapping up Ropemaker Place, a Grade A office building in the City of London, analyst Derrick Heng said Ho Bee has raised its exposure to the UK office market to 41% of its assets from 25%. This 602,000sf NLA freehold property is less than 200m away from the future Moorgate station due to be completed in December this year.
Ropemaker’s annual rental income of GBP30.6 million ($55.1 million) translates to a net yield of 4.7%, based on its acquisition price of GBP650 million. Income visibility should be strong with a long WALE of 10.5 years or 8.5 years to break option for tenants, says Heng. The property is 96%-occupied, with Macquarie Bank, IHS Markit, Mitsubishi UFJ and The Bank of Tokyo Mitsubishi UFJ as key tenants.
In addition, Ho Bee’s acquisition price is 7% below the seller’s reported initial asking price of GBP700 million. Its acquisition yield of 4.7% is also higher than JLL’s prime yield estimates of 4.25%. “While a large base of banking and financial-service tenants may render the building more vulnerable to Brexit-vacancy risks, we believe its long committed WALE provides good earnings visibility,” says Heng.
Ho Bee’s acquisition has raised its annual recurring EBIT by 39% to $195 million. After accounting for higher financing costs from this deal, Heng estimated incremental net profit of $22 million. Balance sheet remains healthy with FY18 net gearing rising to 74%, from Maybank’s previous estimates of 39%.
“We retain our target price of $3.30, still at a 30% discount to our revised RNAV of $4.74. Maintain ‘buy’,” says Heng, adding Ho Bee is the cheapest property developer in its coverage, trading at a steep 50% RNAV discount.
As at 3.44pm, shares in Ho Bee Land are trading at $2.33 or 9.7 times core earnings growth.