Ho Bee Land (formerly: Ho Bee Investment)

[mrEngineer]

I had a quick glance on this latest quarter results and i noticed the large investing cash outflow to investment in associates. Anyone care to share some info on this? Is it something related to the one-north project?

[mrEngineer]

it seems that the investment in associates item came up only this quarter after comparing to the previous quarter results. I noticed that Ho Bee have incorporated a new subsidary to handle the one-north project. In the balance sheet, there are 2 non-current asset items of both investment in subsidaries and investment to associates. I wonder if the 300M is related to the one-north project, why they did not inject it into the subsidaries item but the associate item?

[Musicwhiz]

it seems that the investment in associates item came up only this quarter after comparing to the previous quarter results. I noticed that Ho Bee have incorporated a new subsidary to handle the one-north project. In the balance sheet, there are 2 non-current asset items of both investment in subsidaries and investment to associates. I wonder if the 300M is related to the one-north project, why they did not inject it into the subsidaries item but the associate item?

Just a note: Subsidiaries and associates are classified based on % holdings in which the Group company has, and the extent of "control". Subsidiaries are >=51% and usually there is ownership and operational control, while associates are between 20% and 50% and usually are not operationally controlled by the parent.

Also, for earnings, for subsidiaries it is consolidated into the Group P&L, while for associates it appears as a line item called "Share of Profits/losses of associated companies".

Hope this helps.

[mrEngineer]

Just a note: Subsidiaries and associates are classified based on % holdings in which the Group company has, and the extent of "control". Subsidiaries are >=51% and usually there is ownership and operational control, while associates are between 20% and 50% and usually are not operationally controlled by the parent.

Also, for earnings, for subsidiaries it is consolidated into the Group P&L, while for associates it appears as a line item called "Share of Profits/losses of associated companies".

Hope this helps.

It helps alot. Thanks! I guess the 300M is injected into either Hasidon Holdings (which I have no idea now what they do) or into the china projects with Yanlord (probably not as they are supposedly joint-ventured, so the 300M should be reported into the investments in joint controlled entities)

[computerpunk]

Hi all,
Would it be possible to hear your opinion about Ho Bee or anything you would like to share about your view on the company ?

[freedom]

Just a note: Subsidiaries and associates are classified based on % holdings in which the Group company has, and the extent of "control". Subsidiaries are >=51% and usually there is ownership and operational control, while associates are between 20% and 50% and usually are not operationally controlled by the parent.

Also, for earnings, for subsidiaries it is consolidated into the Group P&L, while for associates it appears as a line item called "Share of Profits/losses of associated companies".

Hope this helps.

It helps alot. Thanks! I guess the 300M is injected into either Hasidon Holdings (which I have no idea now what they do) or into the china projects with Yanlord (probably not as they are supposedly joint-ventured, so the 300M should be reported into the investments in joint controlled entities)

it is related to the joint venture project with Yanlord in China. explained in full year result.

the one north project is under development properties only shown in Q4, probabaly only completed the transaction in Q4.

[freedom]

what's up with Sentosa Cove? It seems developers are not rushing to sell at current price.

only 800+ units of condo left, but a lot of them are completed, but unsold.

projects like Turquoise, Seven Palms, The Residences at W, Seascape, all TOPped, but more than half unsold...

[D123]

what's up with Sentosa Cove? It seems developers are not rushing to sell at current price.

only 800+ units of condo left, but a lot of them are completed, but unsold.

projects like Turquoise, Seven Palms, The Residences at W, Seascape, all TOPped, but more than half unsold...

My view is that sentiment in the property market has been driven down somewhat by the government's cooling measures over the past one and a half years. Add to that the frequent comments by the government that they are willing to take further steps if necessary, I guess no single developer is willing to rock the boat and start aggressively marketing their developments at high prices, even if there is demand, and force the government to make good their threat. No point clearing out your current "inventory", and suffering longer-term price, sales or tax pressures. Or making enemies in the industry. Once the government makes a tax change, it is very difficult to amend or rescind it.

With regards to Sentosa Cove, I think the bluster has also died down somewhat. It is hard to market a super high-end development in an edgy investment climate. If there is not enough potential demand, it is not cost-effective for developers to hold show-flats, luncheons and other marketing events as well. The customer base they have for such developments is already very small to begin with. If 30% or so sit out, the critical size might no longer be there.

Furthermore, if I were a developer, I can probably aggressively market my property holdings now and make maybe 10% to 15% net margins. But if I have holding power, i.e. can service my debts and maintain the developments, I can easily double that margin in a more bullish investment environment. From an ROE perspective, that can be very attractive.

Here's a quote from a 28 Mar 2011 Straits Times article that might provide some insight:
"CDL executive chairman Kwek Leng Beng told the firm's results briefing last month that it does not plan to launch any more units at The Residences at W Singapore in Sentosa Cove.

It has sold only 21 of the 56 units released in the 228-unit project.

Mr Kwek said of the project: 'I can sell it very cheap because my land cost is cheap but I am not prepared to sell it. I have holding power, I will keep it and make it an investment, and later when there is good demand I will release and move on.' "

In 2007, you would think that Sentosa Cove would definitely be a popular buy for the rich and wealthy, if you fell asleep for three years and woke up in 2010, you would likely hold the same impression, or even stronger seeing how there's now the Wavehouse, RWS etc.. In a couple of years, as long as the government keeps investments in Sentosa coming, the luster of Sentosa Cove will hold. It is after all, still the only place in Singapore that can boast true waterfront living. There are good reasons for developers to hold onto their holdings and view them as "investments", holding out for a higher price.

The question then becomes, do you have the holding power?

At last count, these are the Sentosa Cove developments that I know are not yet fully sold:
The Residences at W (CDL)
Marina Collection (Lippo)
Sandy Island (YTL)
Seven Palms (SC Global)
Turquoise (Ho Bee)
Seascape (Ho Bee)

You can make your own judgment on whether these developers buy the argument on holding and whether or not they can hold.

_________________________________________________________________________________________________________________________________

On to Ho Bee specifically, in the past financial year, they have been forced to sell some of their investment properties last year to finance working capital for their One-North project. These include good sites like 4 floors of Samsung Hub. These sales were based on valuations made at the end of 2009, which I would argue, was not a peak for property. So if I were a shareholder, I would definitely cringe, especially when neighbouring Capital Square was sold at $2300 psf, and nearby One Finlayson Green at approx $2600 psf, six to seven months later.

But we should take that in light of the alternatives that they have. Land cost for Turquoise was $919 psf, and Seascape, $1361 psf. On the other hand, Samsung Hub was purchased as a completed development so the $ psf paid will likely be higher (Sale was made at $2125 psf). Assuming similar leverage (which I'm not sure is the case), the interest expenses they can save on Samsung Hub will likely be higher than those on Turquoise and Seascape.

In time to come, it might be hard to bet that Sentosa Cove will lose its luster. Not because the developments are so awesome, but because the Singapore government has invested so much into it, and touted it around the world so much. If it fails, the repercussions will be big. I don't think our government would like to live with the kind of headlines that Dubai's The Palm and The World projects are having. The good thing is our government's balance sheet is still strong enough to indirectly finance projects on Sentosa.
I guess in a few years time, after the One-North project is completed, and maybe, sales at Sentosa Cove pick up again, we'll know if such capital allocation decisions are wise.

[freedom]

good analysis, thanks, D123.

For Ho Bee, I saw other receivables due from joint-controlled entities and associates in their balance sheet. In their 2009 annual report, 400+ M of that receivable is due in 2011. Ho Bee should have enough to finance its One-North project. The land cost 410 million, and the construction cost a bit less than 300 million. Maybe just normal operation to sell floors at Samsung Hub?

[D123]

Well, I guess the receivables could be due at the end of 2011, while Ho Bee has already commenced construction on the One-North site in Mar 2011.

Looking at the FY 2010 report, the same line item has increased to $580mn, while the liabilities/equity ratio increased to 0.62 and debt/equity to 0.5. The company might be reluctant or unable to raise additional debt funds and go back to the aggressive days of 2004-2008. Hence, the sales.

Additionally, the company itself has been saying that the sales were for financing reasons. See
http://info.sgx.com/webcoranncatth.nsf/V...100166D72/$file/HOBEE_Notice_of_Sale_of_Investment_property.pdf?openelement
and
http://info.sgx.com/webcoranncatth.nsf/V...400139950/$file/HoBeePressRelease_SaleofInvestmentProperties.pdf?openelement
The common refrain from the sales announcements is that "The sale proceeds are intended to be used for the reduction of the Group’s borrowings and provide additional working capital for the Group’s businesses."

Also, they were made relatively quickly after the announcement of the win of their bid in the land tender for One-North.