Ho Bee Land (HBL) plans to issue new 5y SGD senior unsecured green bonds at an initial price guidance of 4.60%, in its inaugural issuance. The issuer is unrated, and the bond is expected to be unrated too. Net proceeds from this issuance will be used to finance or refinance new or existing green projects, which may include bank borrowings.
About Ho Bee Land
(Unless otherwise stated, all dollar values are in SGD, all growth rates are YoY, and data is as of FY23.)
Ho Bee Land is a property development and investment company headquartered in Singapore. Within Singapore, it is perhaps most well-known for being the pioneer developer in Sentosa Cove, and it has also made other notable developments like The Metropolis and more recently, Elementum (completed in Dec 2023). Apart from Singapore, it has a portfolio of 8 investment properties in London, including The Scalpel. Overall, its property portfolio stands at $6.8b with a large proportion of it in Singapore (48%) and the UK (42%), and in commercial properties (75%) (Chart 1).
Currently, the Group has a high portfolio occupancy of 95%. In Singapore, The Metropolis has an occupancy rate of 100%, while the recently-completed Elementum already has about 90% leased out. In the UK, many of its properties have 95% - 100% occupancy rates, except for a property (1 St Martin’s Le Grand) which has already been earmarked for asset enhancement initiatives and / or redevelopment. Its portfolio has a weighted average lease expiry (WALE) of 4.3y, with a majority (83%) of its London leases expiring in 2028 and beyond.
Chart 1: Property Portfolio Valuation (% of total)
Financial highlights
We provide a summary of HBL’s key financial metrics in Chart 2 below. HBL’s gross revenues increased slightly (+2%) from $436m in FY22 to $445m in FY23, with management attributing this increase to increased development sales in Australia and resilient rental income across the Group’s investment properties. However, significantly higher finance costs of $158m in FY23 (+79%) weighed on HBL’s operating profits which fell by -28% from $198m in FY22 to $143m in FY23.
HBL’s net loss was reported at -$259m in FY23, significantly lower than FY22’s $167m net profit. Apart from higher finance costs highlighted above, a key driver of FY23 losses arose from negative net fair value changes in its investment properties of -$364m in FY23 (FY22: -$99m). Management has disclosed that this figure includes a fair value loss of -$472m on its London investment properties, mitigated by a fair value gain of $108m on its Singapore portfolio. Nonetheless, we note that such losses are non-cash in nature (even though they are recorded on an accounting basis). HBL’s operating cash flows continued to grow moderately in FY23 (FY23: $307m / FY22: $278m), which we think is a sign of resilience in its underlying businesses.
While we are forecasting a higher-for-longer rates environment in the UK, we also highlight that BOE has already paused rate cuts and markets are expecting rate cuts as soon as Aug 2024. We therefore do not expect a sharp increase in UK capitalisation rates to the extent observed in FY23 (though it may stay elevated given the higher-for-longer rates outlook). Consequently, we also do not expect further fair value losses in FY24 to the extent of that seen in FY23.
To summarise, we do not expect any significant deterioration in HBL’s revenues and profitability. This is given our views on capitalisation rates and fair value changes highlighted above. Furthermore, the recent completion of Elementum (Dec 2023) should also help to add some rental revenue to HBL in FY24.
Chart 2: Breakdown of HBL's revenues and profits ($m)
Credit highlights
HBL’s credit profile has weakened over the past two years (FY21 to FY23), though the pace of weakening has slowed in the past year (FY22 to FY23) (Table 1). For instance, we estimate its interest coverage ratio has weakened in FY23 primarily due to higher net financing costs, but at a slower pace than in FY22.
In addition, HBL’s net gearing (net debt to total equity) and leverage (total debt to total assets) ratios remained fairly steady from FY22 to FY23, after increasing (worsening) from FY21 to FY22. Management has shared that they expect gearing to stay fairly stable in the near term, though they are open to reducing gearing through proactive asset recycling if the opportunity arises.
On the other hand, HBL’s debt maturity profile remains manageable, with most of its FY24 borrowings already refinanced as of 20 Jun 2024 ($397m refinanced, $68m remaining) (Chart 3). We think HBL should be able to refinance its near-term borrowings without major issues. Furthermore, we do not foresee any near-term liquidity issues as well considering HBL’s cash position of $173m as of 31 Dec 2023.
Overall, we think HBL’s credit profile remains manageable for now, but much will depend on how it manages its borrowing costs in the coming years, especially in a potentially higher-for-longer rates environment.
Table 2: HBL’s Credit Metrics
| Credit Metrics | FY21 | FY22 | FY23 |
| Total Debt ($m) | 2,546 | 3,425 | 3,065 |
| Net Debt ($m) | 2,422 | 3,097 | 2,892 |
| Net Gearing Ratio (%) | 61% | 79% | 80% |
| Leverage Ratio (%) | 38% | 45% | 44% |
| Interest Coverage Ratio (x) | 8.7 | 4.1 | 1.9 |
| Source: Ho Bee Land, Bloomberg, iFAST compilations, iFAST estimates. Data as of FY23, as reported by Ho Bee Land. *Coverage = Estimated PBIT divided by net finance costs. PBIT is estimated using profit before tax, fair value changes, and net finance costs. | |||
Chart 3: Debt Maturity Profile ($m)
Thoughts on new issue
Management has shared that they expect this new issue to be roughly gearing-neutral (as the issue proceeds are used for refinancing). Consequently, we do not expect a significant worsening of HBL’s credit position following this new issue. However, we highlight that a significantly large proportion of its existing bank borrowings are secured, which might put bondholders at a disadvantage as this new issue is unsecured. We also reiterate our point above that high borrowing costs may be a persistent headwind for HBL moving ahead, especially in an elevated-rates environment. Consequently, we think this bond is best suited for investors with a slightly higher-than-average risk appetite.
This new issue’s IPG of 4.60% generally represents a sizeable yield pickup compared to peer bonds from issuers like GuocoLand and Wing Tai Holdings (Table 2). However, HBL differentiates itself from its peers with its sizeable UK exposure (unlike GuocoLand and Wing Tai which have more exposure in Singapore; and for Wing Tai, Hong Kong). We think the new issue looks fairly attractive at the IPG of 4.60%, but caution that the final price guidance is likely to come in lower than this stated IPG.
Table 2: Comparison against peers
| Bond Name | Maturity Date (Years to Maturity) | Ask Price | Yield to Maturity (%) |
| HOBEE New Issue* | 11 Jul 2029 (5.0) | 100.000* | 4.60%* |
| GUOLSP 4.050% 04Jun2027 Corp (SGD) | 04 Jun 2027 (2.9) | 100.050 | 4.03% |
| GUOLSP 4.400% 27Jul2028 Corp (SGD) | 27 Jul 2028 (4.1) | 101.400 | 4.02% |
| WINGTA 4.100% 25May2027 Corp (SGD) | 25 May 2027 (2.9) | 100.143 | 4.05% |
| WINGTA 4.800% 26Oct2028 Corp (SGD) | 26 Oct 2028 (4.3) | 103.200 | 3.98% |
| WINGTA 4.380% 03Apr2029 Corp (SGD) | 03 Apr 2029 (4.8) | 101.600 | 4.00% |
| Source: Bloomberg, Bondsupermart, iFAST compilations. Data as of 3 Jul 2024. *Not yet issued. Indicative yield is an IPG, and FPG is likely to be revised downwards. | |||
Declaration: For specific disclosure, at the time of publication of this report, IFPL (via its connected and associated entities) and the analyst who produced this report hold a NIL position in the abovementioned securities.
