First Sponsor Group - DBS Research 2019-11-26: Maiden Entry Into Australia


First Sponsor Group - Maiden Entry Into Australia

  • Maiden entry into an iconic development in Sydney, Australia - 39.9% stake in the redevelopment of the City Tattersalls Club and as the sole construction financier.
  • Total estimated GDC is A$450m (A$22k psqm for residential vs A$28k psqm current sale price in CBD); expected completion by 1Q20.
  • The property will be redeveloped into a mixed-use development comprising a 49-storey tower with a 100-room hotel, 246-unit apartment, retail, event space and premium coworking centre.
  • While the property market in Australia remains weak, we believe the project could garner good interests (especially foreign buyers) given that this is an iconic development. In addition, First Sponsor is capitalising on the weak AUD (to build a track record for future opportunities.

What’s New

  • FIRST SPONSOR GROUP LIMITED (SGX:ADN) announced its maiden entry into an iconic development project in Sydney, Australia with the proposed subscription of a 39.9% stake in the redevelopment of the iconic City Tattersalls Club project in Sydney. See First Sponsor Group Announcements; First Sponsor Group Latest News.
  • Its partner, ICD Property is a property development group based in Australia with a track record of iconic projects in Melbourne such as EQ Tower (residential building partnering Sino-Ocean Land) and Aspire in Melbourne (residential tower, said to be the last ‘super tower’ in Melbourne).
  • Concurrently, high-net-worth individuals will invest 30.1% and 10% stakes in the project while ICD Property will hold the remaining 20%.
  • City Tattersalls Club, one of the largest and oldest clubs in Sydney, has been granted stage 1 development approval by the City of Sydney Council on 21 November 2019, which ICD Property is developing in partnership with the almost 125-year-old club.
  • According to news reports, the property will be redeveloped into a mixed-use development comprising a 49-storey tower with a 100-room hotel and 246-unit apartment block. The approval also allows for plans to rejuvenate the entire clubhouse, including retail, restaurants, club reception on the ground level as well as an event space, premium coworking centre, health and wellbeing and the other member facilities.
  • According to The Sydney Morning Herald, the process to redevelop the club and its airspace started in mid-2013 and after a series of false starts with backers, including Mirvac, which walked away. ICD Property Group joined in 2015. It is described as the final piece in the puzzle of the rejuvenation plans for the eastern CBD precinct.
  • The project sits on a site area of 2,337 sqm, located in the prime CBD on Pitt St which is the central location of connectivity (bus, metro and train), premium retail, major office and hotel buildings.
  • It is situated approximately 100m south of the intersection with Market Street, 300m from the St James Railway Station (with connectivity to the Airport, one stop to Circular Quay, connectivity to the southern suburbs such as Newton and Parramatta) and approximately 200m from the upcoming Pitt Street Metro Station which is expected to be completed in 2024.
  • First Sponsor will have a two-tier investment:
    1. equity partnership,
    2. a A$370m (S$342.7m) sole construction financier providing funding for the project’s entire delivery.
  • The JV is preparing to undergo a design competition process with the City of Sydney in 2020, where a renowned lineup of architects will vie for the design of the City Tattersalls Club. Submission of a Stage 2 DA will follow soon after and construction is expected to begin after receiving Stage 2 approval (estimated in 2021/2022).
  • The expected completion of the project is in 2025.

Key details:

  • The estimated subscription price is A$24.6m (S$22.9m; 80% of total value) for its 39.9% stake. The subscription price is derived from 80% of the total value, of which the total value is derived from a calculated value which includes a commercial premium of A$6.7m/S$6.2m, which works out to be c.22% of the total value.
  • In addition, First Sponsor will be the sole construction financier, providing loan notes of up to A$370m (S$342.7m) with high single digit interests for the purpose of funding the costs of the project. The loans are expected to be drawn down in tranches starting from 2022.
  • Broadly, the trustee entered into a development management agreement (DMA) on 22 Dec 2015 to renovate the Club and develop the airspace for development fee of gross proceeds from the sale of residential apartments. The Club will retain the hotel and the Club components.
  • In addition, the DMA states that the trustee will spend a max of A$100m (S$92.6m) in respect of the works for the Club’s premises and the hotel. Any excess shall be borne by the Club. Conversely, any shortfall will be returned to the Club.
  • Total estimated GDC is c.A$450m which implies c.A$22k psqm for the residential. We understand current market price of residential in Sydney CBD is c.A$28k psqm conservatively.
  • The collaboration is conditional on certain regulatory approvals and conditions which are expected to be formally received in 1Q20.
  • Expected completion of the proposed subscription of units in 1Q20.

Our Views:

  • This is First Sponsor’s maiden development project in Australia after its first property financing loan for a commercial building in the CBD of Melbourne given in December 2018.
  • While the property market in Australia remains weak (especially residential sector) given the tightening of credit, we believe the project could garner good interests given that this is an iconic development located in a prime CBD location which could attract foreign property buyers, such as those from Hong Kong/China.
  • First Sponsor is taking a medium-term view of the Australian residential market as the project will likely be launched possibly in 2021/2022. If successful, First Sponsor could build a strong track record in Australia given the iconic development which could open doors to more investment opportunities.
  • In addition, we believe this is an opportune time for First Sponsor to take advantage of the weak AUD.
  • See First Sponsor Group Share Price; First Sponsor Group Target Price.

Rachel TAN DBS Group Research | Derek TAN DBS Research | https://www.dbsvickers.com/ 2019-11-26
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