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Ho Bee bolsters recurring income shield

The group's rental income has grown from S$14.4m in 2012 to S$209.4m in 2019, anchored by office assets in S'pore, London.

"Post Covid-19, there could be a reset in Singapore residential land prices and therefore an opportunity for us to enter at more reasonable pricing," says Mr Chua Thian Poh.

An artist's impression of the project on the Biopolis Phase 6 site, a multi-tenanted facility for biomedical sciences research and development in the one-north precinct.

IN 2010, Ho Bee Land clinched a commercial site beside the Buona Vista MRT Interchange. With this, the group sowed the seed for transforming its business model from one that had been reliant almost entirely on property development to one with a strong base of recurring income.

The Metropolis office development on the site, with more than a million square feet of net lettable area (NLA), was completed in 2013. Its tenants include Shell, Procter & Gamble and Singapore Exchange.

A decade after it bought The Metropolis site, Ho Bee has bagged a site just a stone's throw away, earmarked for development into Biopolis Phase 6 - a multi-tenanted facility for biomedical sciences research and development in the one-north precinct.

When completed by end-2022, Ho Bee intends to hold the development as a long-term investment, just like The Metropolis, Ho Bee's chairman and chief executive Chua Thian Poh said in an interview with The Business Times.

"The biomedical sciences industry is a key pillar of Singapore's economy and we see this as a growing industry. Given the site's strategic proximity to The Metropolis, we believe there is significant marriage value for us to undertake the development," he added.

Ho Bee's strong determination to win the 60-year leasehold Biopolis Phase 6 site is reflected in its 38 per cent winning margin in the concept-and-price tender by JTC Corporation. The tender drew four bids, three of which cleared the concept evaluation stage. Of the three, Ho Bee's bid was the highest at S$223.60 million or S$502 per square foot per plot ratio. Perennial Real Estate Holdings teamed up with Boustead Projects for a S$161.63 million bid, while CapitaLand's bid came in at S$153.70 million.

Ho Bee has commissioned Skidmore, Owings & Merrill as its lead design architect to conceptualise a landmark development on the site. "Together with The Metropolis, this new project will become an exciting gateway to one-north," said Mr Chua.

Between the two properties sits the Buona Vista node of the Rail Corridor, which Ho Bee will transform into a "vibrant public space with lush landscaping".

Mr Chua's son and Ho Bee Land deputy chief executive, Nicholas, noted that owning the two developments will produce synergies and economies of scale, for example, in the areas of property management, maintenance and marketing.

Through these two assets, Ho Bee will command a prominent dual frontage along Commonwealth Avenue and North Buona Vista Road.

For the Biopolis Phase 6 plot, the authorities have stipulated an allowable gross floor area (GFA) of 445,258 square feet, of which at least 85 per cent has to be for business park use. The remaining 15 per cent will comprise 10,764 sq ft for F&B/retail use and 56,024 sq ft for office use.

Ho Bee expects to achieve a net yield of 5-6 per cent when the rental income from the project has stabilised.

Eyeing similar opportunities

Market watchers estimate the project's total development cost to be S$400 million, which would translate to a breakeven cost of about S$1,100 per square foot on net lettable area (NLA).

Having acquired its first biomedical sciences site, Ho Bee will be looking for similar opportunities, said Mr Chua Thian Poh.

Besides Singapore, London has been the other major market where the group has assembled a portfolio of recurring-income-generating properties. Its seven office assets in London total 1.57 million sq ft in NLA and were valued at £1.378 billion at the end of last year, reflecting an average net yield of 4.64 per cent.

The biggest of Ho Bee's London properties is Ropemaker Place, which has a blue-chip tenant list that includes Macquarie Group and MUFG. Two other assets are entirely leased to the British government.

In 2018, Ho Bee branched out of London to the European Union when it participated in a Credit Suisse European property fund. "This offers us the opportunity to co-invest into larger projects (alongside the fund)," said Mr Chua.

The group has taken an effective stake of about 40 per cent in a major refurbishment project in the Munich City Centre that will increase the NLA by 36 per cent to around 663,000 sq ft of Grade A office space by 2025.

In tandem with its efforts to build up a portfolio of investment properties over the years, Ho Bee has grown its rental income from S$14.4 million in 2012, the year prior to the completion of The Metropolis, to S$209.4 million last year.

Mr Chua set up Ho Bee in 1987 and listed it on the Singapore Exchange in 1999. The group was quite the stockmarket darling from 2006 to 2010, when it reaped bumper profits from developing homes in the Sentosa Cove waterfront residential district.

Things changed after the Global Financial Crisis in 2008-9. The locale seems to have lost its appeal to foreign buyers, partly due to the onslaught of cooling measures.

Ho Bee developed eight projects totalling 1,051 units in Sentosa Cove, of which 602 have been sold.

Of the remaining 449 units - at the Cape Royale, Seascape and Turquoise condominiums (all joint-venture projects) - 88 per cent are leased out, though the aim remains to eventually sell them when the market improves.

Today the group's residential development activity is confined to China and Australia, though selectively. It has developed residential projects on the Gold Coast and in Melbourne. Earlier this year, Ho Bee set up a local team in Australia with an initial focus to develop master-planned landed residential communities catering mainly to local buyers.

In China, the group's joint-venture residential projects in Shanghai, and Tangshan (Phases 1 and 2) are fully sold. Phase 3 of the Tangshan project will be mainly commercial and is undergoing design refinement.

The group's joint-venture project in Zhuhai has 3,669 residential units; of these, 2,799 units have been launched and 96 per cent sold. The Tangshan and Zhuhai projects are large in scale and being built in phases. The remaining phases are expected to be completed in three to five years.

Mr Chua expects the UK residential market, which has been in a correction phase since 2016, to ease further following Covid-19.

"There is still a shortage of middle- and lower-income housing in London and this may be the right time for us to start exploring sites for residential developments in London - at the right entry price."

In Singapore the group has done well for having been disciplined and not following the en bloc sale frenzy of 2017 to the first-half of 2018, when developers bought residential sites at successively higher prices. Market watchers noted that the purchases have generated a substantial pipeline of new projects whose launch has been hampered by the Covid-19 pandemic.

Still, Ho Bee continues to look for development land in Singapore. "Post Covid-19, there could be a reset in residential land prices and therefore an opportunity for us to enter at more reasonable pricing," said Mr Chua.

Pandemic impact limited

The fallout from Covid-19 has hit Ho Bee less than most other property groups, largely because it does not own hospitality assets. Ho Bee has some F&B tenants - and they are affected by the outbreak. But these make up under 2.0 per cent of total lettable area and under 2.0 per cent of total rental income for the group.

The Metropolis in Singapore is fully leased with a weighted average lease expiry (WALE) of 3.5 years.

Ho Bee' seven London office properties are almost fully let - the exception is a 1,000 sq ft basement unit in one of its buildings - with a WALE of 5.6 years.

"We are fortunate that our investment property portfolio is concentrated on the office sector. That is the least impacted (segment) at the moment. At the moment," Mr Chua emphasised.

"If the pandemic prolongs, I don't know how things are going to be."

Right now, Mr Chua's No 1 priority is to minimise the negative impact on the company caused by Covid-19 and at the same time keeping a lookout for compelling opportunities.

What has given Mr Chua the greatest satisfaction over the years in building up Ho Bee is "detecting trends and opportunities not apparent to others".

His vision is for the group to be a "lasting enterprise that is successful and able to give back to society".

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