Ho Bee’s UK office buy at discount to asking price and will boost EPS: Maybank KimEng

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Ho Bee Land snapped up the Ropemaker Place Grade-A office building in London at a discount to the reported initial asking price, in a deal that will boost income substantially, Maybank KimEng said in a note last week.

The brokerage raised its earnings per share estimates for 2018-20 by 7-22 percent after incorporating the deal.

“This deal has put its conservative balance sheet to work and should enhance its recurring EBIT by 39 percent, in our estimation,” it said. EBIT stands for earnings before interest and taxes. It estimated annual recurring EBIT would rise to S$195 million, with incremental net profit after higher financing costs of S$22 million.

Earlier this month, Ho Bee Land said its wholly owned subsidiary Grandeur Property Investments acquired Frasia Properties S.a.r.l, or FPS, owner of Ropemaker Place, for 650 million British pounds, or around S$1.16 billion.

The annual rental income from the building is around 30.57 million pounds, or around S$55.0 million, with a net yield of 4.68 percent, Ho Bee had said.

Maybank KimEng was positive on the acquisition price.

“The price paid appears reasonable, at a 7 percent discount to the vendor’s asking price and with yields at almost 50 basis points higher than prime office yields in the locality,” it said. The acquisition yield of 4.7 percent is higher than JLL’s prime yield estimates of 4.25 percent for the City, Maybank KimEng said.

“While a large base of banking and financial-service tenants may render the building more vulnerable to Brexit-vacancy risks, we believe its long committed WALE provides good earnings visibility,” it said. WALE stands for weighted average lease expiry. It noted the property is 96 percent occupied.

Maybank KimEng kept its target price unchanged at S$3.30, with a Buy call.

“Trading at a steep 50 percent RNAV discount, Ho Bee is the cheapest property developer in our coverage,” it said. RNAV stands for revalued net asset value.

The stock ended Friday down 2.59 percent at S$2.26.