Results First Take: FY21 Results – REIT-like developer with a 141% growth in earnings per share
- FY21 earnings per share increased 141% and dividends maintained at 10 Scts
- REIT-like dividends expected to be maintained with growing rental income, especially with the addition of The Scalpel in London
- Development of Elementum (Biopolis Phase 6) is on track for completion in FY23 and is expected to generate a further S$17m in rental income per annum
- Foray into master-planned community projects in Australia starting to bear fruit as its maiden project in Queensland comes online
- Maintain BUY with TP of S$3.80
Higher rental income and development profits
- FY21 revenue increased 61% y-o-y to S$347.7m, due mainly to sale of development properties and higher rental income
- S$124.0m in revenues from sales of development properties in Turquoise in Sentosa Cove, as well as land plaots in the master-planned community project in Parklakes 2 (Queensland)
- Higher rental income from positive rental reversions at several London properties
- Gross profits of S$225m was a 15% y-o-y increase
- Again, due mainly to profits from sale of development properties
Share of profits from JV increased to S$71.3m
- Share of results of JV increased from S$2.2m (FY20) to S$71.3m mainly due to:
- Handing over of more completed units to buyers at the Tangshan project in China
- Higher occupancy rate at Cape Royale and thus higher rental income
- Fair values gains for Cape Royale
- Higher sales of Seascape in Sentosa Cove
Fair value gains of S$53.1m for investment properties
- FY21 revaluation gain of S$53.1m is a reversal of the S$32.8m revaluation loss in FY20
- Singapore portfolio: +S$18.3m
- UK portfolio: +S$34.8m
- Likely due to some cap rate compressions as well as higher rentals achieved
Earnings per share of 49.77 Scts; a 141.4% increase y-o-y
- Earnings per share of 49.77 Scts was more than 141% increase y-o-y
- Mainly attributed by the higher profits from investment portfolio and sale of development properties
- Also partly due to lower financing costs due to lower floating rates for GBP loans, and lower income tax expense from the reversal of S$23.6m in taxes
- Higher staff costs and director’s remuneration, as well as net exchange lost partially offset the gains
- Exchange loss of S$5.8m due to depreciation of AUD and EUR against the SGD during the year
Our thoughts
We were positively surprised by HBL’s results for FY21. Although we had anticipated higher rental income, the higher revenues from development properties and fair value gains for its development projects were a pleasant surprise. The robust property market led to sales of several units at Turquoise in Sentosa, as well as Seascape also in Sentosa (at the share of JV level).
For its investment portfolio, we believe that the revaluation gains were a result of higher rental rates at some London properties, as well as some cap rate compressions. With rental rates for offices in London and business parks in Singapore likely to remain robust and see further positive rental reversions, we project HBL’s rental income to increase by a further c.2% in FY22. Moreover, its recently announced acquisition of “The Scalpel”, another Grade A office building in the London CBD, will contribute additional revenues of GBP29m annually. Although the property was acquired at a relatively tight gross yield of c.4.0%, the 10-year WALE of the property provides HBL with another stream of recurring cash flows that could potentially increase with rising rental rates in London.
In the year ahead, we believe that HBL would be able to carry out some sales of development projects in Sentosa. In addition, it could also recognise more sales of residential plots for its master-planned community projects in Australia. Currently, HBL has a total of eight master-planned community projects in Australia that is estimated to yield c.4,200 residential plots when completed.
We continue to like HBL for its stable recurring income stream and potential for development project gains. Its investment portfolio is expected to report growing rental income as its properties undergo further positive rental reversions, as well as the inclusion of The Scalpel that will lead to a c.23% uplift in rental income on an annual basis. Its development property portfolio is also expected to report robust profits as the Singapore property market remains healthy, and more of its master-planned community projects in Australia come online.
We currently have a BUY recommendation with a TP of S$3.80. HBL’s “REIT-like” dividend in FY21 remained constant at 10 Scts, translating to a dividend yield of more than 3.6%.