+ S$28.3mn revaluation gain as a result of the sale of a 30-year leasehold interest in its 999-year Bukit Timah petrol station site. The Group undertook the valuation as the sale consideration was significantly higher than last valuation at end FY17. This would translate to approximately a 4c increase in RNAV.
+ 16% increase in total recurring rental income mainly as a result of new acquisitions. Latest acquisition of Ropemaker Place, the Grade A office building in London, was completed on 15 June 2018. With annual rental income of S$55mn, we estimate this acquisition will increase recurring earnings by c.42% vs our original FY18e net property income.
+ Metropolis, the Group’s trophy Grade A office building in Buona Vista, remains 100% leased. Management expressed optimism at minimally maintaining rental rates at the property’s upcoming lease expiries over the next year. Metropolis contributes c.55% of total rental income by our estimates, pre-acquisition of Ropemaker Place.
– 44% increase in financing costs along with rise in net gearing ratio from 0.4x at end FY17 to 0.76x. This is primarily due to the increase in debt of S$1.15bn to fund the acquisition of Ropemaker Place. Average all-in cost for the incremental GBP debt stands at c.2% vs running yield of 4.7% for the acquisition.
– Potential delay again in Sentosa launch. Close to 42% of previous buyers for units at the Group’s Sentosa projects Seascape and Turquoise are foreigners, who are likely to bear the brunt of the additional 5% ABSD cooling measure announced on 5 July. As a result, we think it is likely the Group will delay the re-launch of these projects again, which has been originally scheduled to be this year in the Group’s 1Q18 announcement.
Outlook for the recurring income portfolio is stable due to the long WALE of the Group’s UK investment properties (10.5 years for the latest acquisition Ropemaker) and the stability of The Metropolis. We estimate recurring net property income for FY18e from the Group’s investment properties is sufficient to cover 3.3x ordinary dividend of 8c/share for FY18e. Uncertainties remain for the Group’s relaunch of the 3 Sentosa properties which take up c.14% of our estimated GAV pre-Ropemaker Place acquisition.
Maintain ACCUMULATE with unchanged RNAV-derived target price of S$2.98.
HBL trades at a steep 45% discount to NAV, below its post GFC average P/NAV of 0.63 and one of the steepest discounts amongst locally listed developers.