Perennial Real Estate Holdings (PREH SP) - DBS Research 2018-04-06: A Lucky Break In Singapore Residential Market

PERENNIAL REAL ESTATE HLDGSLTD 40S.SI

Perennial Real Estate Holdings (PREH SP) - A Lucky Break In Singapore Residential Market

Enters JV with Qingjian to jointly redevelop Goodluck Gardens.
Estimated project cost at S$800m; gross development value of up to S$1.0bn.
New partner in deepening its Singapore presence and have jointly bid for Holland V site.

Perennial Real Estate Holdings Limited (PREH) has announced that the group (holding 40%) has entered a joint venture (JV) with Qingjian Group (60% stake in JV) to jointly develop the freehold residential site. The site had been previously awarded to Qingjian group for S$610m on the 8 March 2018.

With no further development premium payable for the site, the acquisition price translates into a land rate of S$1,100 psf; estimated breakeven to be close to S$1,600 and launch prices from S$1,750-1,800 psf onwards. Assuming on average a 700-sqft unit size, the redevelopment of the site could yield close to 720 units. Total gross development value (GDV) could range up to S$970m-1,100m.
PREH’s capital commitment for its 40% stake in the project is estimated to be c.S$96.5m. Assuming a 70% project debt financing for the project will imply a total commitment of S$321m.
Nestled in a quiet neighbourhood, we note that there are not many newly completed properties, the latest being The Terrene (Developed by UOL, competed in 2014, transacting at around S$1,100psf) but transaction quantum average around S$1.5-2.0m given the larger unit sizes. A quick check on PropertyGuru, shows that secondary market asking prices for the development have risen to c.S$1,500psf.
However, given the ageing estate, en-bloc activities in the vicinity have been active. SP Setia’s site won in February 2017 is reportedly ready for launch (Daintree Residences, land bid at S$940psf) with launch prices starting from S$1,600psf onwards.

One of Perennial (PREH)'s strength is its ability to pair up with partners with significant capital to co-develop and share development risk with the group.
While we see Qingjian can be seen as sharing the project risk with PREH, we do note that the consortium (PREH-Qingjian) have placed in two bids for the Holland Village GLS site, and if awarded, will add significant exposure to the Singapore property market. Goodluck Garden, Qingjian has two sites in its staple, with Shunfu Ville being the other and have over 1,900 units to be launched in the coming quarters, worth over S$2.5bn in GDV.

Rachel TAN DBS Vickers | Derek TAN DBS Vickers | http://www.dbsvickers.com/ 2018-04-06

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