+ Relaunch of Sentosa properties to take place this year. The Group intends to market unsold units at Turqoise and Seascape (total 151 units) this year. We note the increase in secondary transacted volumes of Sentosa condominiums in 1Q18 at 17 units, highest since 2012 (Figure 1), although transacted prices are still languishing around S$1,600psf. We assumed a conservative S$1,500psf value for these properties in our RNAV forecast.
+ Metropolis remains 100% leased. 30% of leases due for expiries this year- Expect flat to low single digit reversions. Average rents for the project fall within the S$7.50-S$8 range. Management expressed optimism at achieving minimally flat to slightly positive rental reversions. Metropolis contributes c.55% of total rental income by our estimates.
+ Entry into Continental Europe with investment into property fund. The total EUR 90mn investment will be into a Credit Suisse European property fund and a commercial building in Munich. The fund’s targeted net IRR could hit “double digit”, management guided. Actual realised IRR to the Group could be higher with the use of Group balance sheet to lever up for the fund investment.
– No new addition to land bank inventory. With rising land prices, management has adopted a conservative strategy in its bidding. We note that the Group has been largely absent from the various GLS bids over the past few years, with only the only bid coming in the Punggol EC land site. That came in 27% lower than CDL’s winning bid of S$583psf.
Outlook for the recurring income portfolio is stable. We continue to stay positive for its stable recurring income and undervalued high-end property portfolio. FY17 recurrent rental income is sufficient to cover 2.8x ordinary dividend of 8c/share in FY17. Successful re-launches and monetization for the Sentosa properties above our assumed S$1,500psf capital value will be catalysts for a narrowing of the discount and upgrade in RNAV.
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.
Figure 1: RNAV Table