CAPITALAND LIMITED (SGX:C31)
CITY DEVELOPMENTS LIMITED (SGX:C09)
CAPITALAND COMMERCIAL TRUST (SGX:C61U)
KEPPEL REIT (SGX:K71U)
Property – Singapore - URA Master Plan 2019: Injecting Vibrancy Into Our Global City
- URA Master Plan 2019 will rejuvenate the central area, allowing office space to be converted to hotel and residential use. The development of economic gateways in the east, north and west regions will bring employment areas and transport infrastructure closer together.
- Key beneficiaries are deeply discounted developers with low gearing (CAPITALAND LIMITED (SGX:C31) and CITY DEVELOPMENTS LIMITED (SGX:C09)) and office REITs (CAPITALAND COMMERCIAL TRUST (SGX:C61U) and KEPPEL REIT (SGX:K71U)).
- Maintain OVERWEIGHT on the sector.
WHAT’S NEW
- URA has released the Draft Master Plan 2019 for public feedback by 25 Apr 19:
Rejuvenating the central area.
- The government plans to increase in the live-in population within the central business district (CBD) at Downtown, Marina South and Rochor to enable more people to live near their workplace.
- Over the longer term, the government plans to redevelop two key areas – Greater Southern Waterfront and Paya Lebar Air Base.
- Some 1,000ha of land stretching across the southern coastline from Pasir Panjang to Marina East will be freed up for development after the City Terminals and Pasir Panjang Terminal relocate to Tuas.
- Paya Lebar Air Base will relocate and free up 800ha of land, which will be transformed into a highly liveable new town.
CBD Incentive Scheme.
- URA will offer an increase in gross plot ratio (over and above the maximum permissible intensity) for areas within the CBD to encourage the conversion of existing office developments to hotel and residential use. The CBD Incentive Scheme will apply to the Anson Road, Cecil Street, Shenton Way, Robinson Road and Tanjong Pagar areas.
Trend of decentralisation and building regional hubs.
- The economic gateways in the east, west and north regions bring together key employment areas and transport infrastructure.
- The Eastern Gateway comprises Changi Aviation Park and Changi City, including Changi Business Park and Singapore University of Technology & Design.
- The Northern Gateway comprises the Northern Agri-Tech and Food Corridor, including Agri-Food Innovation Park at Sungei Kadut and Woodlands Regional Centre.
- The Western Lake District, Jurong Innovation District near Nanyang Technological University and Tuas Terminal.
Moving underground.
- The government intends to free up surface land for people-centric uses by relocating utilities, transport, storage and industrial facilities underground. It will develop 3D underground maps to facilitate planning of underground space, initially for Marina Bay, Jurong Innovation District and Punggol Digital District, and expand to include more areas in the future.
ACTION
Budgeting expenditure on transportation infrastructure.
- Singaporeans could shorten their travelling time by living and working within the central area or the three economic gateways.
- Residential developments within the CBD and the three economic gateways will alleviate congestion on the transport infrastructure during peak hours. It helps the government manage expenditure on transport infrastructure, so that more resources could be channelled towards healthcare as Singapore’s population ages.
Maintain OVERWEIGHT.
- We like developers trading at deep discount to RNAV with healthy balance sheets, such as CAPITALAND LIMITED (SGX:C31) and CITY DEVELOPMENTS LIMITED (SGX:C09).
- We like real estate agency PROPNEX LIMITED (SGX:OYY).
- Office REITs are also key beneficiaries of Master Plan 2019.
BUY developers with low gearing.
- The Master Plan 2019 benefits developers with low gearing, and who could actively participate in upcoming auction for land parcels in the central area.
- BUY CapitaLand with manageable net debt/equity at 0.98x.
- City Developments also benefits as Republic Plaza and The Arcade could be redeveloped to maximise permissible plot ratio. City Developments has a low net debt/equity of 0.40x.
Office REITs are key beneficiaries.
- Office landlords, such as CAPITALAND COMMERCIAL TRUST (SGX:C61U) and KEPPEL REIT (SGX:K71U), benefit from redevelopment of older office buildings, which reduces the supply of office space.
- In particular, office REITs who owns older buildings with redevelopment potential could benefit. For example, CapitaLand Commercial Trust could redevelop HSBC Building while Keppel REIT could redevelop Bugis Junction Tower, instead of divesting the two buildings.
- BUY CapitaLand Commercial Trust and Keppel REIT.
Alleviate shortage of hotel rooms.
- The conversion of office space into hotel rooms or serviced apartments could alleviate the shortage in the hospitality sector. The supply of hotel rooms is estimated at 3-year CAGR of only 1.5% in 2019-21, compared to growth in tourist arrivals of 6.2% each in 2017 and 2018.
- However, the pace and magnitude of conversion is likely to be insufficient, given strong growth in tourist arrivals and the transformation of Singapore’s tourism landscape. BUY CDL HOSPITALITY TRUSTS (SGX:J85) and FRASERS HOSPITALITY TRUST (SGX:ACV).
SECTOR CATALYSTS
- The Master Plan 2019 rekindles interest to invest in developers trading at deep discount to RNAV and office REITs.
- Dovish disposition at both the Fed and the ECB rekindles interest to invest in S-REITs.
ASSUMPTION CHANGES
- Our earnings forecasts are unchanged.
RISKS
- Uncertainties from potential hard Brexit.
- Uncertainties from outcome of US-China trade conflict.
Jonathan KOH CFA
UOB Kay Hian Research
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Peihao LOKE
UOB Kay Hian
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https://research.uobkayhian.com/
2019-03-28
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