Multiple catalysts to unlock value
More than just recurring income
(+) 1H22 revenues increased 13% y-o-y to S$178.3m
HBL’s 1H22 revenues increased 13.3% y-o-y to S$178.3m on the back of higher contributions from both the property development and property investment segments.
Revenue from the property development segment increased c.S$6.2m (or 14.5%) y-o-y to S$49.6m, mainly due to the sales of more units at Turquoise in Sentosa Cove in 1H22. Although, we believe that the bulk of the sales at Turquoise has already been recognised in the past few quarters. Meanwhile, HBL will begin recognising revenues from the sales at Cape Royale, also in Sentosa Cove. It was reported last month that HBL has begun selling some of its units at Cape Royale, and about half of the 50 units that were launched have already been sold. Median prices achieved were between S$4.0m and S$5.5m for the three-bedroom and four-bedroom units, respectively.
Property investment revenue also increased 12.9% y-o-y to S$128.6m, mainly attributable to higher rental income following the acquisition of The Scalpel in London in March 2022. The Scalpel is a Grade A office building in the heart of London’s insurance district. The c.S$1.3bn office building was acquired at a yield of c.4%, and is expected to generate rental income of c.GBP29m per annum.
(+) EUR44.8m gains from divestment of Munich office property
HBL’s other income increased to S$32.8m, mainly due to fair value gains of S$30.8m recognised from its investment in Munich Notes. The underlying office asset in Munich was divested in February 2022, and the total gains were c.EUR44.8m. Approximately half of the fair value gains were already recognised in FY21, while the remaining c.EUR20.2m (S$30.8m) was recognised in 1H22.
(+) S$16.0m in net fair value gains on investment properties
Net fair value gains of S$16.0m on its investment properties portfolio were recorded in 1H22, a turnaround from the S$3.7m fair value loss in 1H21. The net gain was derived as a result of the increase in the value of its Singapore portfolio. The Metropolis (in Singapore) recorded a S$56.4m fair value gain, which was likely the result of better occupancies and higher rental rates, while the cap rate in Singapore remained relatively stable.
However, fair value gains were partially offset by the loss in its London portfolio. The fair value losses in its London portfolio would have been mainly due to the depreciation of the GBP against the SGD, as well as some cap rate expansion in the London office market. Cap rates for its London properties have expanded marginally from 4.03%-5.65% (December 2021) to 4.25%-6.00% (June 2022).
(-) Unrealisable exchange losses and higher financing costs
Due to the strengthening of the SGD, HBL recorded a net unrealisable exchange loss of S$12.0m. This was mainly due to the revaluation of HBL’s net monetary assets in AUD and EUR.
Finance costs increased 71% y-o-y to S$33.2m in 1H22. The increase was mainly due to additional bank borrowings of c.S$1.1bn used to fund the acquisition of The Scalpel and the development sites in Australia. HBL’s net gearing currently stands at c.0.89 times. Additionally, the rising SONIA rates also led to higher financing costs for its GBP floating rate loans.
(+) Share of profits from China increased 54% y-o-y
1H22 share of profits increased 54% y-o-y to S$16.7m, mainly contributed by profits from the Nanjing project, which started handing over units to buyers in 1H22. Its share of profits was partially offset by contribution from the Shanghai project, which has been fully recognised in FY21.
The share of profits from jointly controlled entities decreased 84% y-o-y, mainly due to the absence of profits from Phase 2 of the Tangshan project in China that had been fully handed over to buyers in 1H21. The S$7.8m in profits of jointly controlled entities in 1H22 was largely derived from the sales of Seascape in Sentosa Cove.
(+) EPS and NAV increased
Due to higher profits, EPS for 1H22 increased by more than 42% y-o-y to 22.57 Scts. The higher fair value of its portfolio also led to a c.S$0.05 Scts increase in HBL’s NAV. Its NAV as at 30 June 2022 inched up to S$5.97.
