Singapore Property Sector - DBS Research 2018-01-15: Firming Fundamentals

Singapore Property Sector Singapore Office REITs SUNTEC REAL ESTATE INV TRUST T82U.SI SINGHAIYI GROUP LTD 5H0.SI SUNTEC REAL ESTATE INV TRUST T82U.SI

Property Sector - Firming Fundamentals Analyst

Positives in Office & Residential sectors.
Robust Office leasing to boost rental growth trajectory.
Sinhaiyi won the tender for Park West Condo enbloc; supply in the vicinity a concern.

An array of leases has been done at Frasers Tower, resulting in the building being 70% pre-committed, ahead of completion. This is generally positive as major new supply entering the market in 2018 is now substantially leased out, another boost that Grade A rents for newer office buildings should start on an upward trajectory.
Gross rent for Frasers Tower is understood to have appreciated by 10%-15% over the past year. The “flight to efficiency” theme continues to play out amongst office tenants as better office specifications and connectivity are key draws for some of these tenants to relocate.
We note that the reported list of tenants is moving out from other CBD offices and around the vicinity, some of whom are expanding their presence in Singapore.
To highlight, major completions in 2018, a year of low supply, are now already taken up, namely Frasers Towers (634,000 sqft, 70% leased); Robinson Towers (194,000 sqft 93% leased).
We believe this will be a catalyst for Frasers Centrepoint Limited (FCL), office REITs (Suntec REIT and Keppel REIT) to rally further.

Singhaiyi won Park West en bloc for S$841mn (S$850 psf ppr including differential premium), 44% higher than the West Coast Vale GLS site in early 2017. Property could potentially be redeveloped into more than 1,700 units.
Supply expected to build up in the area given that there are 2 GLS sites with 1 land tender expected to close end of Jan18 amidst past property launches (The Trillinq and Parc Riveria especially) which took a while to clear until recently.

Singhaiyi together with its owners (50:50 JV with Haiyi Wealth, an entity controlled by Gordon Tang and Celine Tang) won its 3rd enbloc site, Park West condo for S$841mn (S$850psf ppr including differential premium). The price is 44% higher than the West Coast Vale GLS site acquired by China Construction in early 2017.
The estimated breakeven is close to S$1,350psf, above the average prices of properties around the vicinity transacted in the past one year at S$1,240psf, including (The Trilinq ASP: S$1,221psf) and Parc Riviera (ASP: S$1,253psf)).
The property could potentially be redeveloped into more than 1,700 units from currently ~436 units, a significant number in our view. There is no mention about the traffic study at this point. The site is 600m to 700m away from Clementi MRT station and Clementi Mall.

Given that there is another West Coast Vale GLS site tender to close by end of this month and another GLS site in the reserve list (Clementi Avenue 1) estimated to be launched by mid-2018, the supply in the area is expected to build up while properties recently launched in the area took a while to clear after sales started to pick-up recently.

Derek TAN DBS Vickers | Rachel TAN DBS Vickers | Melvin SONG CFA DBS Vickers | http://www.dbsvickers.com/ 2018-01-15

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