News Analysis: Sharpening its rucurring income stream with “The Scalpel”

  • Announced the acquisition of a Grade A office building in London for GBP718m
  • The property will generate additional revenues of GBP29m annually
  • HBL’s recurring income is expected to grow by more c.27% with this acquisition
  • Growing recurring income base while also building up its development projects portfolio
  • Currently have a BUY recommendation with a TP of S$3.80

Ho Bee Land Ltd has just announced the acquisition of a Grade A office building in London dubbed “The Scalpel” because of its sleek and geometrical design. With this acquisition, HBL will have an investment portfolio valued at more than S$7.3bn and we project its recurring income stream to grow to more than S$250m per year.

Details of the proposed acquisitions are:

  • Grade A office building in the heart of London’s insurance district
  • At the junction of Lime Street and Leadenhall Street
  • Purchase consideration of GBP718m (S$1.31bn)
  • 36 storeys with a total NLA of c.406,000 sqft
  • Acquisition expected to complete on 7 March 2022
  • Multi-tenanted building with long tenancies of 10 years with average passing rents of GBP29m per annum, implying a yield of c.4%
  • Let to reputable tenants from the insurance, financial, legal and tech sectors such as National Australian Bank and Lombard International
  • Accessibility to the property will be further enhanced in mid-2022 when the Crossrail is opened

Source: “The Scalpel”, Ho Bee Land

With this acquisition, HBL will have an overall investment portfolio that is worth more than S$7.3bn. It will further enhance its recurring income by c.27%. Its investment properties portfolio currently generates annual revenues of c.S$200m, and the addition of The Scalpel will bring its recurring cashflows to more than S$250m per annum. 

We understand that the acquisition will be funded by internal funds and bank borrowings, and we estimate that fully debt funding the property will still leave HBL with a very healthy gearing of below 0.75x.

We continue to remain positive on HBL following this acquisition and the growth of its recurring income stream. This acquisition is expected to contribute positively to EPS and NTA. Over the past year, HBL has also been actively building up its master-planned residential projects in Australia which will drive development income going forward.

We currently have a BUY recommendation with a TP of S$3.80. We will revisit our estimates for HBL when they announce their FY21 results on 28 F