GuocoLand - CIMB Research 2017-09-29: Puts In Top Bid For Beach Rd Commercial Site

Guocoland - CIMB Research 2017-09-29: Puts In Top Bid For Beach Rd Commercial Site GUOCOLAND LIMITED F17.SI

Guocoland - Puts In Top Bid For Beach Rd Commercial Site

  • Guocoland / Guoco Group holds top bid for Beach Rd commercial site
  • Exposure to the office rental recovery rises
  • RNAV neutral for now; maintain Add rating with Target Price of S$2.77. 

Puts in top bid for Beach Rd commercial site

  • Guocoland and its JV partner Guoco Group emerged as the top bidder for the Beach Rd commercial GLS site. Guocoland will take 70% of the project and Guoco Group, the remaining 30%. 
  • The 2-ha land parcel, known as the former Beach Rd Police Station, is located along Beach Rd and can house up to 88,313 sqm of GFA, of which a minimum 70% must be for office use and a maximum 3.4% for retail use.
  • The developer will be required to build an underground walkway between the site and Bugis MRT station, and conserve and restore the former Beach Rd Police Station, located on the land parcel.

Strong participation from notable developers

  • The tender drew five bids including other notable names such as Cheung Kong, OUE and Far East Organisation (FEO). Guocoland/Guoco Group’s price level of S$1.622bn is 3.2% higher than the second bidder Kingsford while the lowest entry came from FEO at S$1.295bn.
  • Guocoland/Guoco Group's bid translates to S$1,706psf ppr and is much higher than the S$1,069psf ppr paid by City Developements for its South Beach site in 2007, and also higher than the S$1,689psf ppr paid by IOI Properties for the Central Boulevard site recently.

Exposure to office rental market recovery rises

  • In addition to increasing Guocoland's leverage to the recovery in the office rental market, we believe the bullish bid also reflects the good location of the site, which is in proximity to the Bugis, City Hall and Esplanade MRT stations, and could also benefit from plans to revitalise the Kampong Glam and Beach Rd areas that form part of the Rochor-Ophir Corridor under the Urban Redevelopment Authority's (URA) 2008 Master Plan.

RNAV neutral for now, improving efficiency could boost returns

  • We estimate the breakeven cost for this site to be c.S$2.3bn or S$2,400-2,450psf of GFA. Hence, we estimate this project would likely be RNAV neutral for now. We think one of the means to boost returns from this project would be to improve space efficiency, if possible.
  • With experience garnered from developing the mixed-used Tanjong Pagar Centre and high utilisation achieved from that development, we think Guocoland could look to replicate its success for this latest win.

Maintain Add rating

  • The latest land acquisition could increase Guocoland's net debt to equity from 0.91x as at end Jun 17 to 1.26x, on the higher end of comparable peers' range. 
  • In terms of valuation, we leave our RNAV estimate for Guocoland unchanged for now and maintain our Add rating and TP of S$2.77 (based on a 25% discount to RNAV).

LOCK Mun Yee CIMB Research | http://research.itradecimb.com/ 2017-09-29
CIMB Research SGX Stock Analyst Report ADD Maintain ADD 2.770 Same 2.770