Possible Orchard Towers sale, easing pandemic curbs could be catalysts for Hiap Hoe

THE Covid-19 pandemic has not been kind to Hiap Hoe 5JK : 5JK 0% , a real estate company with a range of properties in Australia, Singapore and the United Kingdom spread across the hospitality, retail, commercial and residential sectors.

As travel restrictions are lifted, however, the group could enjoy a revival in its fortunes. A potential collective sale of Orchard Towers is a sweetener for investors.

With the start of the pandemic, investors gave Hiap Hoe a wide berth. In 2020, its market capitalisation fell 20 per cent as investors anticipated a tough year.

Its financials have proven investors right. The company's revenue fell 39.8 per cent to S$79.6 million from S$132.2 million in the financial year ended Dec 31, 2020; it posted a loss of S$36.7 million, down from the profits of S$22.1 million in FY2019.

The weak financial performance came largely from a 73.1 per cent decline in revenue from residential development properties, to S$3.2 million; revenue from hotel operations and other related income fell 44.3 per cent to S$46 million.

In its annual report for FY2020, the company noted that travel restrictions following the outbreak of Covid-19 had affected the company's hotel revenue, and that the demand for travel and accommodation would remain challenging until the pandemic abates.

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But green shoots are now emerging.

For H1 2021, Hiap Hoe posted a net profit of S$7.4 million - reversing a loss of S$21.2 million in the year-ago period. The company's revenue rose 5.8 per cent to S$45.4 million.

Hotel income was up 9.7 per cent, thanks to higher interstate travel in Australia, where state borders began gradually reopening in early 2021. Hotel income accounted for 59.8 per cent of the company's revenue in the first half of 2021. Among the properties Hiap Hoe owns in Australia are The Four Points by Sheraton in Melbourne and Aloft Perth, both of which are managed by Mariott International.

Numbers could continue to improve for H2 2021 and H1 2022. Australia is expected to reopen its borders to vaccinated tourists from Feb 21.

Meanwhile, an early indicator of a recovery in Singapore is revenue per available room in Zhongshan Park. Hiap Hoe owns 2 hotel properties there - Ramada Singapore and Days Hotel Singapore.

The Singapore Tourism Board notes that RevPAR rose to S$133.23 last November. That is the highest it had been since January 2020, when the figure stood at S$191.53.

Additionally, Hiap Hoe has entered into a new lease for its A-grade commercial property at 130 Stirling Street in Perth, Australia, of approximately 7,910 square metres over 3 floors beginning early this year. It was 23 per cent occupied in 2020, with 11,863 sq m of office space and 486 sq m of retail space.

The biggest potential catalyst for Hiap Hoe, however, is the potential collective sale of Orchard Towers. Hiap Hoe owns 59 strata lots in the property. In its 2020 annual report, the group said that its 21 shops and 38 offices in the mixed-use development had an occupancy rate of 57 per cent - down from 66 per cent in 2019.

Last August, The Business Times reported that a collective sale committee had appointed an advisor; last Friday (Feb 4), this paper reported that the committee had recommended a reserve price at S$1.6 billion.

Exactly how much Hiap Hoe would be entitled to is yet to be determined. Its lots represent 12,633 sq m of strata area out of the total gross floor area of 16,859 sq m.

Unit owners will vote at an extraordinary general meeting on Feb 18 on the proposed price tag and method of apportionment of sale proceeds, among other things.

After the news of a potential collective sale broke last August, Hiap Hoe's share price rose to S$0.70, but enthusiasm has since waned. The counter closed Feb 9 at S$0.67, up 3.1 per cent for the year, giving it a market capitalisation of S$315.3 million.

That values Hiap Hoe at 42 per cent of its book value - not too far off the valuation of its peers Stamford Land and Sing Holdings, which trade at 57 per cent and 48 per cent of their book values, respectively.

Property analysts have flagged that the appetite for collective sales may be limited this year, but they have also said that properties in choice locations would still be in good demand. Hiap Hoe shareholders will be hoping the Orchard Towers address is choice enough.

READ MORE:

• Orchard Towers' potential en bloc sale may come with S$1.6 billion price tag
• No certainty that Orchard Towers' potential S$1.6b collective sale will proceed: Hiap Hoe
• Tanglin Shopping Centre, Orchard Towers among ageing Orchard buildings heading for en bloc