September 22, 2017 Real Estate Singapore THIS REPORT HAS BEEN PREPARED BY MAYBANK KIM ENG RESEARCH SEE PAGE 9 FOR IMPORTANT DISCLOSURES AND ANALYST CERTIFICATIONS Co. Reg No: 198700034E MICA (P) : 099/03/2012 Singapore Property Land Market Springs To Life Busy month in land market; remain POSITIVE We see a busy month ahead for Singapore’s land market. Tender for a prime commercial site on Beach Road will close on 28 Sep. Those of another nine enbloc deals will close by 16 Oct. We expect strong bids for the commercial site and see a positive read-through for office REITs and developers with large office exposure. Given the recent flurry of enbloc deals, we expect developers to be more selective. Our thesis that a resurgent enbloc market could ease land-price escalation could be put to the test in the coming month. We remain POSITIVE on the sector, expecting catalysts from a rebound in property prices. UOL and CityDev are our preferred large-cap developers. GuocoLand offers attractive relative value for investors with lower liquidity thresholds. CCT is our top office REIT for upside from its Golden Shoe redevelopment. Risks include a sharp fall in property prices. Expect strong bids for Beach Road tender As prime commercial land remains in short supply, we expect strong bids for the Beach Road site when tender closes on 28 Sep. The developer that triggered the site for sale has committed to a minimum price of SGD1.138b or SGD1,197 psf ppr. Consultants are calling for a top bid of SGD1,262-1,400 psf. With a potential rebound in Singapore’s office market, we see rents reaching SGD11 psf by the time the project is completed in 2022. This should make it profitable even at the top end of forecasts. And with Singapore’s residential market showing early signs of a recovery, we see good reasons to incorporate a residential component. Positive read-through for office stocks As a predominantly office site, bullish bids for Beach Road could enhance the asset values of office landlords, by reflecting high replacement costs for their buildings. Furthermore, they would be an expression of developers’ confidence in the sector’s outlook, providing a positive read- through for office stocks. Apart from office REITs that are the most concentrated proxies, developer landlords with large office exposure should also be seen as beneficiaries. Spoilt for choice in resurgent enbloc market We provide an update of our compilation of enbloc deals in the pipeline. Other than the 7,500 units from deals concluded YTD, enbloc deals in the market today could offer another 6,000 units to developers’ inventories. Another 20+ deals at various stages of the process could add a further 17,500 units. Given this flurry, we believe developers can afford to be more selective. Our thesis that land-price escalation could ease with greater land supply could be put to the test when results of nine deals due by 16 Oct are announced. We reiterate that this resurgence has also set a positive feedback loop in motion. Displaced households looking for replacement homes will front-load demand and push out supply. While developers are spoilt for choice in the enbloc market, we believe listed players will be more cautious in bidding for larger sites. This is due to potential penalties under Qualifying Certificate (QC) rules. While these alone are not enough to trigger privatisation, we reckon that some developers could start contemplating delisting if this “unfair” advantage is not addressed by the regulators. Ho Bee is arguably the strongest candidate for this. Analyst Summary of exposure (% of valuation) Source: Companies, Maybank Kim Eng estimates [Unchanged] POSITIVE Derrick Heng, CFA (65) 6231 5843 [email protected]Property Developers BBG Rating Price TP P/BV Ticker (SGD) (SGD) (%) (x) UOL Buy 8.09 9.43 (27) 0.79 CIT Buy 11.22 12.05 (17) 1.09 GUOL Buy 2.29 2.75 (36) 0.72 HOBEE Buy 2.35 3.00 (44) 0.53 CAPL Hold 3.60 3.75 (31) 0.87 Source: Maybank Kim Eng RNAV disc. Office REITs BBG Rating Price TP Yield P/BV Ticker 17E (SGD) (SGD) (%) (x) CCT Buy 1.70 1.81 5.4 0.92 KREIT Hold 1.17 1.18 5.3 0.83 SUN Hold 1.86 1.80 5.3 0.88 Source: Maybank Kim Eng 81 66 89 28 22 37 44 4 12 24 16 12 3 10 26 13 13 4 1 12 9 26 12 3 6 8 11 9 14 40 41 68 12 14 2 6 0 20 40 60 80 100 CCT SUN KREIT UOL CIT GUOL HOBEE CAPL (%) SG office SG resi SG retail Hospitality Overseas Others
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September 22, 2017
Real Est
ate
Sin
gapore
THIS REPORT HAS BEEN PREPARED BY MAYBANK KIM ENG RESEARCH
SEE PAGE 9 FOR IMPORTANT DISCLOSURES AND ANALYST CERTIFICATIONS
Co. Reg No: 198700034E MICA (P) : 099/03/2012
Singapore Property
Land Market Springs To Life
Busy month in land market; remain POSITIVE We see a busy month ahead for Singapore’s land market. Tender for a
prime commercial site on Beach Road will close on 28 Sep. Those of
another nine enbloc deals will close by 16 Oct. We expect strong bids for
the commercial site and see a positive read-through for office REITs and
developers with large office exposure. Given the recent flurry of enbloc
deals, we expect developers to be more selective. Our thesis that a
resurgent enbloc market could ease land-price escalation could be put to
the test in the coming month. We remain POSITIVE on the sector,
expecting catalysts from a rebound in property prices. UOL and CityDev
are our preferred large-cap developers. GuocoLand offers attractive
relative value for investors with lower liquidity thresholds. CCT is our top
office REIT for upside from its Golden Shoe redevelopment. Risks include
a sharp fall in property prices.
Expect strong bids for Beach Road tender As prime commercial land remains in short supply, we expect strong bids
for the Beach Road site when tender closes on 28 Sep. The developer
that triggered the site for sale has committed to a minimum price of
SGD1.138b or SGD1,197 psf ppr. Consultants are calling for a top bid of
SGD1,262-1,400 psf. With a potential rebound in Singapore’s office
market, we see rents reaching SGD11 psf by the time the project is
completed in 2022. This should make it profitable even at the top end of
forecasts. And with Singapore’s residential market showing early signs of
a recovery, we see good reasons to incorporate a residential component.
Positive read-through for office stocks As a predominantly office site, bullish bids for Beach Road could enhance
the asset values of office landlords, by reflecting high replacement costs
for their buildings. Furthermore, they would be an expression of
developers’ confidence in the sector’s outlook, providing a positive read-
through for office stocks. Apart from office REITs that are the most
concentrated proxies, developer landlords with large office exposure
should also be seen as beneficiaries.
Spoilt for choice in resurgent enbloc market We provide an update of our compilation of enbloc deals in the pipeline.
Other than the 7,500 units from deals concluded YTD, enbloc deals in the
market today could offer another 6,000 units to developers’ inventories.
Another 20+ deals at various stages of the process could add a further
17,500 units. Given this flurry, we believe developers can afford to be
more selective. Our thesis that land-price escalation could ease with
greater land supply could be put to the test when results of nine deals
due by 16 Oct are announced. We reiterate that this resurgence has also
set a positive feedback loop in motion. Displaced households looking for
replacement homes will front-load demand and push out supply. While
developers are spoilt for choice in the enbloc market, we believe listed
players will be more cautious in bidding for larger sites. This is due to
potential penalties under Qualifying Certificate (QC) rules. While these
alone are not enough to trigger privatisation, we reckon that some
developers could start contemplating delisting if this “unfair” advantage
is not addressed by the regulators. Ho Bee is arguably the strongest
Location. As prime commercial land remains in short supply, we expect strong bids for the
Beach Road site, whose tender will close on 28 Sep. Located at the edge of Singapore’s
CBD, the land parcel is bordered by Nicoll Highway, Beach Road and Rochor Road. It will be
indirectly connected to the Bugis MRT station via underground links to nearby project DUO.
DUO and recently-completed South Beach are the newest office buildings in this office
submarket. Older buildings in the area include Shaw Tower, Suntec City, The Gateway and
Parkview Square.
Predominantly offices; good reasons to add residential component. Tender conditions
require the winning developer to use at least 70% of the site’s maximum 88,313 sqm GFA
for offices. Assuming an efficiency ratio of 85%, the minimum net lettable area (NLA) for
offices would be 566k sf. This would make it comparable to the office components of DUO
(570k sf NLA) and South Beach (510k sf NLA). The balance can be used for a hotel, serviced
apartments, residential units or retail space, subject to a maximum of 3,000 sqm for retail.
With an impending rebound expected in Singapore’s residential market and a less
restrictive development timeline than a typical residential site, we see good reasons to
incorporate a residential component. As a commercial government land sales (GLS) site, the
residential component is not subject to Additional Buyers’ Stamp Duties and QC rules,
which would limit its sell-by dates. This implies a lower-risk option for the winning
developer to replenish its residential inventory.
Fig 1: The plot is located near newly-completed office buildings, DUO and South Beach
Source: URA
Fig 2: A conservation building within the site bordered by Nicoll Highway, Beach Road and Rochor Road
Source: URA
Pricing. The land was released from the government’s reserve list in June this year, after a
developer triggered its sale by committing to a minimum bid price of SGD1.138b or
SGD1,197 psf ppr. In a recent poll conducted by The Straits Times, consultants are
expecting the top bid to come in at SGD1,262-1,400 psf. With the exception of a Central
Boulevard site sold to IOI Properties (IOI MK, Not Rated) in November last year, the
minimum bid price committed is higher than the unit prices of all office sites sold in the
past decade. Due to the rental difference between these two office sub-markets, it is
unlikely that the Beach Road plot will command the same pricing as Central Boulevard.
September 22, 2017 3
Singapore Property
Fig 3: Land prices of key office sites in Singapore’s CBD Minimum price of SGD1,197 psf ppr for Beach Road site. Consultants expect SGD1,262-1,400 psf.
Source: URA, Companies, The Straits Times, The Business Times, Maybank Kim Eng
Valuation scenarios. Landlords of newer office buildings in the vicinity are asking for about
SGD9.50 psf today. Those of older offices have lower asking rents of SGD4.50-8.00 psf.
Given our view of a bottoming office market, we believe rents of a new office building in
the area could reach SGD11 psf by the time the Beach Road site is completed in 2022.
Assuming cap rates stay low at 3.50%, we estimate an office capital value of almost
SGD3,000 psf. This should underpin a gross development value (GDV) of SGD2.4b for an
office development with ancillary retail space. We believe a developer can achieve similar
valuations by including a residential component. Apart from diversification benefits and a
lower-risk alternative for replenishing residential stock, the developer could potentially
enhance the project’s IRR with early cashflows from residential presales. Even at the top
end of consultants’ forecast of a SGD1,400 psf land cost, we estimate a pretax development
margin of 18%. With these assumptions, we estimate a breakeven office price of SGD2,400
psf or rentals of SGD8.90 psf. This implies that the project will be unprofitable only if office
rents stay stagnant in the next 4-5 years, which is too bearish, in our view.
Positive read-through for office stocks. We believe bullish bids will be interpreted
positively for stocks with large office exposure. As a predominantly office site, bullish bids
could enhance the asset values of office landlords by reflecting the high replacement costs
for their buildings. This theme played out after the Central Boulevard land tender in
November last year; it could take centre stage again after this deal. Bullish bids would also
be an expression of developers’ confidence in the sector’s outlook and provide a positive
read-through for office REITs, which are the most concentrated proxies, and developer
landlords with large office exposure.
South Beach (mixed) CDL JV $1,069
Asia Sq T1 (office)
MGP $1,409
Asia Sq T2 (mixed)
MGP $779
Tanjong Pagar Centre (mixed)
GuocoLand $1,006
SBF Centre (office) Far East
$882
Frasers Tower (office) Frasers $1,112
Redev. CPF Bldg (office, 52yrs lease balance)
Ascendas-Singbridge JV
$907
Central Blvd (office)
IOI, HKLD JV $1,689
$1,197
$1,262
$1,400
0
500
1,000
1,500
2,000
Dec-0
6
Jun-0
7
Dec-0
7
Jun-0
8
Dec-0
8
Jun-0
9
Dec-0
9
Jun-1
0
Dec-1
0
Jun-1
1
Dec-1
1
Jun-1
2
Dec-1
2
Jun-1
3
Dec-1
3
Jun-1
4
Dec-1
4
Jun-1
5
Dec-1
5
Jun-1
6
Dec-1
6
Jun-1
7
Dec-1
7
(SGD psf ppr)
Beach Rd (office)
Fig 4: Exposure to Singapore office
Source: Companies, Maybank Kim Eng estimates
89
81
66
44
37
28
22
4
0 20 40 60 80 100
KREIT
CCT
SUN
HOBEE
GUOL
UOL
CIT
CAPL
(%)
SG office
September 22, 2017 4
Singapore Property
Fig 5: Possible permutations for Beach Road site
GFA Efficiency NLA Rooms Unit price (SGD psf) / Value per key (SGD m)
GDV (SGD m)
(000 sf) (x) (000 sf) (no.) Base High Low Base High Low
An experienced hotel developer could explore this option.
Source: Maybank Kim Eng estimates
Fig 6: Valuations of key office buildings owned by property companies The market could compare the valuation of existing offices with the replacement cost of a new building
Suntec City Offices refer to offices owned by Suntec REIT. KREIT owns one-third stakes in MBFC and ORQ. SUN owns one-third stakes in MBFC Ph 1 and ORQ.
Source: Companies, Maybank Kim Eng estimates
0.74 0.70
0.50
0.88
3.08
1.33 1.33
0.29 0.45
0.89 0.78
0.51
1.08
1,844
2,299
2,830 2,981
2,932
2,870
2,258
1,887 1,843
2,419
2,638 2,743
1,477
0
500
1,000
1,500
2,000
2,500
3,000
3,500
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
(m sf) NLA Capital value (RHS) (SGD psf)
CAPL / CCT KREIT
SUN
UOL GUOL CDL HOBEE
September 22, 2017 5
Singapore Property
Spoilt for Choice in Resurgent Enbloc Market
14 deals done, 10 on the market, more than 20 in the pipeline. We provide an update of
our compilation of enbloc deals in the pipeline. On top of the 7,500 units added from deals
concluded YTD, enbloc deals on the market today could offer another 6,000 units to
developers’ inventories. Another 20+ deals at various stages of the process could add a
further 17,500. Given the flurry of deals, we believe developers can afford to be more
selective. Our thesis that land-price escalation could ease with greater land supply will be
put to the test when the results of nine deals due by 16 Oct are announced. We reiterate
that this resurgence has also set a positive feedback loop in motion. Displaced households
looking for replacement homes will front-load demand and push out supply.
Fig 7: Sources of residential land for property developers
Source: URA, The Business Times, The Straits Times, Propertyguru, The Edge, Companies, Maybank Kim Eng estimates
Fig 8: 2H17 government land sales (GLS) list Six sites on the confirmed list will add 2,800 residential units. Another 5,000 units could be triggered from the reserve list.
Property Land price
Tenure Potential resi. GFA
Unit price Current units
Potential units
Sub location Buyer Remarks
(SGD m) (years) (000 sqf) (SGD psf)
Confirmed list 1,955 2,840
Chong Kuo Road n.a. 99 72 n.a. n.a. 90 Sembawang n.a. To launch in Oct.
Handy Road n.a. 99 78 n.a. n.a. 130 Dhoby Ghaut n.a. To launch in Nov.
Sumang Walk (EC) n.a. 99 875 n.a. n.a. 815 Punggol n.a. To launch in Dec.
Hillview Rise n.a. 99 431 n.a. n.a. 535 Hillview n.a. To launch in Dec.
Holland Road n.a. 99 0 n.a. n.a. 570 Holland Rd n.a. Mixed. To launch in Nov.
Sengkang Central n.a. 99 498 n.a. n.a. 700 Sengkang n.a. Mixed. To launch in Dec.
Silat Avenue n.a. 99 937 n.a. n.a. 1,160 Bukit Merah n.a.
Source: URA, Maybank Kim Eng estimates
2.0
4.2
5.8 5.0
14.0
2,840
4,970
7,495
5,950
17,546
0
5000
10000
15000
20000
0
2
4
6
8
10
12
14
16
2H17 GLS confirmedlist
2H17 GLS reserve list Concluded deals On the market Potential pipeline
Potential GFA Potential units (RHS)(m sf) (000)
Escalating land prices due to tight land supply from the government.
Concluded deals to add 5.8m GFA or 7,500 units.
Land from government Private sources of land
More to come
September 22, 2017 6
Singapore Property
Fig 9: Private land deals concluded YTD and pipeline 14 deals concluded YTD will remove 1,700 units from the system and add 7,500 in the medium term. 10 on the market could remove another 1,600 units and add 6,000 units. More than 20 other properties are reportedly exploring collective sales.
^Refers to asking price for deals on the market. @Refers to land area for landed sites.
Source: URA, The Business Times, The Straits Times, Propertyguru, The Edge, Companies, Maybank Kim Eng estimates
September 22, 2017 7
Singapore Property
Expect cautious bids for large sites. While developers are spoilt for choice in the enbloc
market, we believe listed players will remain cautious in bidding for large sites. This is due
to punitive QC rules, which require foreign developers to complete their projects within
five years and sell all units in another two years. Listed developers are considered foreign
developers; privately-held developers owned by Singaporeans are not. This “unfair”
advantage was evident in a recent deal. Recently-privatised Sim Lian was the only bidder
for Tampines Court, which could potentially yield 2,500 units when redeveloped. We
believe the difference in QC treatment largely explains Sim Lian’s sole bid, as it is no longer
subject to this rule after its privatisation.
Listed developers could contemplate privatisation if “unfair” advantage is not
addressed. While QC penalties alone may not be enough to trigger privatisation, we believe
some residential developers could start contemplating delisting if this “unfair” advantage is
not addressed by the regulators. A potential screen for privatisation candidates, in our
opinion, includes a low free float, depressed valuations and experience in developing
residential projects in Singapore. Within our universe, we see Ho Bee as the strongest
candidate. It trades at an undemanding 0.53x P/BV and 44% discount to RNAV. Free float is
just 25%, which translates to a free-float market cap of a mere SGD0.4b. While it does not
have projects facing QC deadlines, privatisation could give it more flexibility when
acquiring fresh enbloc sites.
Fig 10: P/BV vs free floats of property developers with market caps above SGD1m Low free floats and P/BV valuations are natural screens for privatisation candidates
Relative size of bubbles corresponds to relative size of free-float market caps (SGD m)
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BUY Return is expected to be above 10% in the next 12 months (excluding dividends)
HOLD Return is expected to be between - 10% to +10% in the next 12 months (excluding dividends)
SELL Return is expected to be below -10% in the next 12 months (excluding dividends)
Applicability of Ratings
The respective analyst maintains a coverage universe of stocks, the list of which may be adjusted according to needs. Investment ratings are only applicable to the stocks which form part of the coverage universe. Reports on companies which are not part of the coverage do not carry investment ratings as we do not actively follow developments in these companies.
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