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

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.

Central Boulevard site tender receives 7 bids

  • 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.

Site is predominantly for office use

  • 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.

Bid reflects a mid-term recovery in office leasing market….

  • 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.

… but office rents are likely to continue sliding for now

  • 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.

Prefer UOL and CCT for office exposure

  • 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.

Highlighted companies 

CapitaLand Commercial Trust ADD, TP S$1.69, S$1.54 close 

  • 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 Group ADD, TP S$7.97, S$5.66 close 

  • 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 | 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