Heeton Holdings, formerly a wet market owner in the late 1960s, has evolved significantly. Its first joint venture with Koh Brothers Development to develop Sun Plaza in Sembawang marked a pivotal moment. The development was launched in November 1999 with 93 speciality shops, including a supermarket, post office, library, cinema and food court. Sun Plaza later underwent a two-year-long asset enhancement initiative (AEI), completed in August 2015, to expand the mall by 5,772 sq ft and boost the total net lettable area to around 158,000 sq ft.
In 2011, Heeton entered the hospitality sector, owning and operating hotels. The group ventured into hospitality assets as part of its diversification strategy from property development. This move aims to establish a more stable stream of recurring income for the company.
Heeton’s foray into hospitality began after the 2008 Global Financial Crisis, which significantly impacted various property markets. The group’s initial venture was to acquire two Thai hospitality properties. “We thought that it was a good idea to diversify into the hospitality segment,” says Ivan Hoh, CEO of Heeton Holdings 5DP , in an interview with The Edge Singapore. “In the property development business, we will frequently experience lumpy earnings. But our hospitality segment helps to contribute a constant stream of recurring income.”
Since diversifying in 2011, Heeton has expanded its portfolio to include 14 hotels: Nine in the UK, three in Japan, two in Thailand, one in Bhutan and one under construction in China. Initially a hotel property owner, Heeton has since ventured into hotel operations, launching its brands in Thailand, the UK and Bhutan. In Japan, however, hotels are operated by a local partner.
“As a developer, Heeton has expertise in real estate. But now, as a hotel operator, we can also better control our costs and devise better plans for sustainability and maintenance of the property,” explains Hoh.
The company engages a third-party management company to help manage the manpower and operations in its overseas properties. “This is cheaper than franchising a popular hotel brand,” adds Hoh, adding that this is how the Heeton Concept Hotel brand was born. Heeton is keen to expand its house brand, focusing on the property’s location. According to Hoh, the brand should align with the location and they may opt for an international brand if necessary. Hoh notes that a prime location paired with the right brand can lead to higher average daily rates (ADR) for the property.
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Still in the red
During its latest FY2023, ended December 2023, Heeton recorded an overall loss of $3.18 million due to higher interest rates on its bank borrowings. Finance expenses were 46.4% higher y-o-y at $27.4 million.
Hoh adds that the company was not immune to inflation and had to endure higher costs of various kinds. Revenue showed improvement as the markets where its hospitality business operates have begun opening up and tourism has been improving in these markets. The company’s revenue comprises rental income from investment properties, hotel operating income and management fees.
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Revenue was 7.8% higher y-o-y to $67.9 million from $62.9 million a year ago due to increased hotel operation income, as its hotels in the UK enjoyed higher occupancy rates. Heeton’s property development segment is accounted for under the share of results from associated and joint venture companies. This approach reflects its involvement in development projects primarily through joint ventures or consortia.
Traditionally, it has partnered with KSH Holdings, Lian Beng Group and Oxley Holdings 5UX to develop domestic and international projects and acquire assets.
Share of results from associated companies and joint venture companies was a loss of $1.14 million in FY2023 compared to gains of $3.8 million in FY2022. This was mainly due to lower profits recognised for a development project after obtaining TOP and increased financial expenses.
Over the past five years, Heeton’s share price has been confined to between 18.3 cents and 26.1 cents. The share price over the past 12 months has not moved. Trading volume is also typically low, with no analysts’ coverage. As of June 30, 2023, the company’s net asset value was 88 cents, which, at its Mar 20 share price of 27 cents, implies a P/B of 0.31 times.
Hoh does not agree that the stock is a “value trap”. “A lot of value can still be extracted from the company. We are not exactly conservative, but we are careful and selective in going into investment and opportunities to extract the best benefits for shareholders.”
He attributes the group’s significant financial setback to the pandemic, largely stemming from its extensive hospitality portfolio. The group is rebuilding its business as the global economy rebounds from the health crisis.
Hospitality and retail revamp
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Like many property companies, Heeton has a relatively high gearing, which, according to Bloomberg, stands at 94.7%, while net gearing came in at 80.7%. Hoh says: “For a company this size, the gearing aligns with the industry norm. Heeton is quite comfortable with the gearing at this level under the current economic and business climate.”
“Having said that, the company will constantly review its financial position at regular Treasury meetings.”
On the outlook, Hoh adds: “We will remain focused on our core businesses, development and hospitality. We will now assess where to grow our hospitality portfolio and bid on development tenders in Singapore.”
He remains optimistic about the hospitality market in Japan and continues to seek acquisitions in that region, particularly in Osaka and Kyoto. Hoh highlights Japan due to the prevailing low-interest rate environment and the weak Japanese yen. Additionally, he notes the resurgence of tourism in Japan as a contributing factor to their focus.
Heeton is also planning to expand its presence in the UK and is set on acquiring a second property in Edinburgh, Scotland. Hoh says continental Europe, as a larger market, has “always been on the mind”, but this requires economies of scale and Heeton will look into it when the opportunity arises.
In Singapore, the company is still bidding for land developments and is interested in executive condos (EC) due to its fast sales turnaround, albeit with lower margins. It is also looking to develop properties in sectors other than residential, such as manufacturing, industrial, logistics and data centres.
“We will still mostly bid in a consortium if the deal is big. It helps to spread the risk; if we do it in a joint venture, we can do more projects,” says Hoh. Heeton will also try bidding for government land sales (GLS) sites in Singapore or seek collective sales.
Meanwhile, Heeton is looking to beef up its retail mall team. It has two retail malls under its portfolio: Sun Plaza and Tampines Mart.
Tampines Mart, situated at Tampines Street 32, serves as a wet market and mall. Completed in 1992, this marked Heeton’s inaugural venture into non-residential properties. It is also the first neighbourhood market centre developed and operated by a private enterprise within an HDB estate. On its revitalisation plans, Hoh says: “We want to change the tenant mix in the two malls and bring in brands that are crowd pullers.”
