SINGAPORE (Sept 29): Maybank Kim Eng says GuocoLand’s bid for the Beach Road commercial site has strengthened its case for the property group to start a REIT platform.
Meanwhile, the brokerage cum research house is keeping its estimates unchanged pending award for the tender.
“Maintain ‘buy’ and RNAV-based target price of $2.75. Risk is a sharp call in property prices,” says analyst Derrick Heng in a Friday report.
At $1.622 million or $1,706 psf ppr, Heng thinks GuocoLand and Guoco Group’s top bid for the Beach Road commercial site is above the consultants’ expectations and “fairly aggressive”. GuocoLand and its parent will take a 70% and 30% stake in the project. respectively.
Nonetheless, earlier analysis by Maybank suggests that a developer can achieve a gross development value of $2.4 billion at the site. At GuocoLand’s bid, the house is estimating a discounted development surplus of 6 cents.
At least 70% of the site’s maximum 88,313 sqm GFA must be for office use while the balance can be used for hotels, serviced apartments, residential units or retail space.
“With an impending rebound in Singapore’s residential market and a less restrictive development timeline, we see good reasons for the group to incorporate a residential component,” says Heng.
While it could lift FY18 net gearing to 1.0x from 0.7x, Heng sees no need for the group to resort to equity fund raising.
Having said that, the new project is reason for GuocoLand to establish a REIT to provide an avenue to recycle capital in new commercial developments.
Shares in GuocoLand are down 3 cents to $2.27 or 0.7 times FY18 book value with a net dividend yield of 3.0%.
