Property Devt & Invt - CIMB Research 2016-11-09: Record bid for Central Boulevard site

CAPITALAND COMMERCIAL TRUST C61U.SI CAPITALAND COMMERCIAL TRUST C61U.SI

Property Devt & Invt - Record bid for Central Boulevard site

Above market expectations, a record bid price of S$1,689 per sq. ft. per plot ratio (psf ppr) was received for the Central Boulevard white site from IOI Properties.
This bid could signal a bullish longer-term outlook for the office sector, but for now, we still expect rents to decline on supply pressure
We prefer UOL and CCT for office sector exposure. Maintain Overweight on the Singapore property sector.

The tender for a white site at Central Boulevard has closed with 7 bids received. The highest bid was submitted by IOI Properties (via Wealthy Link Pte. Ltd.) at S$2,568.69m (S$1,689 psf ppr). This is the highest price paid for a white site and above earlier market expectations of c.S$1.5bn-1.8bn (S$1,012-1,200 psf ppr). The previous record was S$1,409 psf ppr set for Asia Square Tower 1 in Sep 2007.
The 2nd highest bid was 14% lower at S$2,206.8m (S$1,451 psf ppr) from Mapletree Investments, while Nanshan Group and Cheung Kong put in a price of S$1,398-1,438 psf ppr. Capitaland/Great Eagle, Yanlord and OUE/Guangzhou R&F/Tang City Properties had bids ranging from S$1,318 to 1,256 psf ppr.

The 10,868.7sqm (116,991sqft) site, adjacent to Asia Square Tower 1, can be built up to 50-storeys, and house up to 141,294 sqm (1,520,889 sqft) GFA. At least 100,000sqm (1,076,400 sqft) GFA or 70.77% must be allocated for office use.
In addition, up to 5,000 sqm GFA must be set aside for retail use. The development must also include a childcare facility with at least 500 sqm GFA. The balance can be used for office, commercial school, hotel, serviced apartment or residential uses.

At this price, we reckon the cost to completion would be c.S$3,100-3,200psf of leaseable area.
Based on an expected rental yield of 4%, the development would likely have to command a rent of S$12psf/mth or back to the 2009 level. This represents a CAGR of 6% p.a. for the next five years.

This optimistic bid implies a bullish office rental market outlook over the medium term.
While the bid is above our projections, the expectation of a moderate recovery in the office leasing market post the current wave of supply is in tandem with our mid-term sector view. For now, however, we still expect office rents to retrace by another 5- 10% in 2017, after a 13% drop from the peak in 1Q15 as new supply gets digested.

Among listed players, we prefer major office landlords, such as UOL and CCT, for exposure to the office sector. Both stocks are trading at 0.54-0.88x P/BV and appear to have priced in the office rental downtrend.
We maintain our Add rating for UOL with an unchanged target price of S$7.97, pegged at a 20% discount to RNAV.
Our Add call on CCT remains unchanged with a DDM-based TP of S$1.69.

CCT is trading at 0.88x P/BV and offers investors an FY17 DPU yield of 6%. Forward growth is underpinned by additional contributions from CapitaGreen.

UOL has high recurring income underpinned by office rentals, hotels and investment holdings, providing the group with a stable income base. The stock is trading at a 44% discount to RNAV.

LOCK Mun Yee CIMB Research | YEO Zhi Bin CIMB Research | http://research.itradecimb.com/ 2016-11-09

CIMB Research SGX Stock Analyst Report ADD Maintain ADD 1.690 Same 1.690

ADD Maintain ADD 7.97 Same 7.97