SPH to press mall business advantage

SINGAPORE Press Holdings (SPH) is hoping to cement its track record of owning Paragon and The Clementi Mall and establish a foothold in the retail mall sector in the long term.

‘We aim to build on the track record of our property portfolio and establish our presence in the retail mall sector,’ said SPH CEO Alan Chan. ‘This complements our wide spectrum of media and other businesses, and helps to boost the group’s total returns.’

The media group, which won a bid for a commercial site in Sengkang yesterday, said that it would continue to explore ways to enhance its property portfolio when opportunities arose. Apart from owning Paragon and a 60 per cent stake in The Clementi Mall, SPH is also the developer of luxury condominium Sky@eleven at Thomson Road.

For the newly won site that sits at the junction of Sengkang West Avenue and Fernvale Road, the group intends to create a commercial development catering to the lifestyles and needs of residents living in Sengkang and the north-eastern regions of Hougang, Punggol and Serangoon.

‘The immediate catchment area, which comprises Sengkang and parts of Hougang, Serangoon, Ang Mo Kio and Punggol, has a good demographic profile,’ a spokesman for the group said. ‘The majority of the residents are in the economically active age groups and the majority of households are within the middle-income level of $5,000 and above.

‘Moreover, there is potential to increase the catchment size as Sengkang is fast being built-up and increasingly being populated.’

The tender for the site was won by Earth Holdings Pte Ltd with a bid of $328 million, or $1,155.52 per square foot per plot ratio (psf ppr). It has a lease of 99 years and can be developed to a maximum gross floor area of 283,856 sq ft.

Earth Holdings is a 70-30 joint venture between wholly owned units of SPH and United Engineers.

The site acquisition will be funded through a combination of internal resources and external borrowings.

Commercial land at Sengkang West/Fernvale Rd receives good response

A commercial site put up for tender by HDB at Sengkang West Avenue/Fernvale Rd met with good response, attracting 12 bidders. The top price of 328m or $1,155psf ppr was submitted by a consortium made up of SPH and UE. It beat the second bidder Alpro management (JHan Chee Juan, developer of Iluma) with a $959psf ppr price tag. The 94,619sf site can house 283,856sf of GFA. Located at the Fernvale LRT station, the site is seamlessly linked to the Sengkang MRT/LRT station and Sengkang bus interchange and will cater to the lifestyle needs of the growing Sengkang residents as well as those in the north eastern regions of Hougang, Punggol and Serangoon Central.

Based on our estimates, we reckon breakeven cost of the development is $2,300-2,350psf. Based on stabilized monthly rental estimates of $12-14psf, the development can yield 4.3-5.1% return when completed and fully tenanted.

The response continues to support our view of the more resilient nature of suburban retail malls as they cater to more non-discretionary spending patterns. We reiterate our positive stance and maintain Buy call on landlord CMT.

SPH/UED’s top bid for Sengkang retail site – a long term perspective in retail malls

Additional comments on SPH’s bid for retail site at Sengkang West/ Fernvale

• SPH’s continued move in retail mall investment not surprising

• Bid seems optimistic, but likely to adopt a long term perspective given area’s potential

• Do not expect any impact on its DPS (24 Scts)

• Maintain Hold recommendation & TP

Tops bid for Sengkang site

Coming in at a 21% premium over the next highest bid, we believe that SPH/UE JV’s bid for the Sengkang retail site is aggressive, notwithstanding the site’s good attributes. Implied 5%yields on breakeven costs are also below cap rates for suburban retail.

We keep our estimates and SOP target price unchanged pending an award of the tender. Maintain Neutral as decent yields of 6% remain balanced by risks of receding ad growth and investments.

What Happened

SPH in a 70:30 JV with United Engineers has come out tops in a bid for a greenfield Sengkang retail site at S$328m (S$1,156 psf ppr) or 21% above the next highest bid. The 99-year leasehold site attracted a total of 12 bidders. Site is targeted for a retail development with maximum GFA of 283,856sf.

What We Think

Management appears to be pricing in a premium in its bid. Factoring in development and other costs, breakeven is estimated at about S$2.5k psf, which translates to yields of about 5.1% assuming rentals of S$15 psf. This compares negatively with typical yields of 5.5-5.6% expected on suburban malls. While the site is well-located near the Fernvale LRT station with potential good rental growth and catchment, we see some competition from Compass Point (next to Sengkang MRT station). A redeeming factor could be its partnership with United Engineers, which could cap or even lower its development costs and risks–we understand that SPH has an agreement with United Engineers whereby the latter bears cost overruns during construction. Funding is not expected to be a problem given its strong balance sheet.

What You Should Do

We see the positive of utilising its balance sheet outweighed by the slight negative of a fairly high bid price. Maintain Neutral as decent yields of 6% remain balanced by risks of receding ad growth and investments.

SPH-UE venture’s bid for Sengkang mall site is tops

Offer of $1,155.52 psf ppr is 20.5% above closest rival’s

A 70:30 Singapore Press Holdings and United Engineers tie-up has emerged as the top bidder for a shopping centre site at the corner of Sengkang West Avenue and Fernvale Road with a bid of $328 million or $1,155.52 per square foot per plot ratio (psf ppr).

The state tender for the 99-year leasehold, triangular plot next to Fernvale LRT Station was well participated, drawing 12 bids.

The top bid was about 20.5 per cent or $55.8 million more than the second highest offer of $272.2 million or $959 per square foot per plot ratio (psf ppr) by Han Chee Juan’s Alpro Management Services. Mr Han developed Iluma mall in Bugis which he later sold to CapitaMall Trust.

Alpro’s bid at yesterday’s tender for the commercial plot in Sengkang was $44.8 million or about 20 per cent above the third highest bid of $227.4 million or $801.12 psf ppr from a Mapletree unit.

A unit of Frasers Centrepoint – the group that developed Compass Point mall next to Sengkang MRT Station, about 2 km away from the latest plot – offered $770.14 psf ppr. The 94,618 sq ft plot tendered yesterday can be developed into a gross floor area of up to 283,854 sq ft.

SPH owns Paragon along Orchard Road and 60 per cent of Clementi Mall, which opened last year and is profitable. Based on the group’s top bid at yesterday’s tender in Sengkang West, market watchers’ estimates of the breakeven cost for a new mall project range from about $2,400 psf to $2,600 psf.

Knight Frank group managing director Danny Yeo, who estimates the breakeven cost at about $2,500 psf, said: ‘Assuming an investor is looking to achieve a 5 per cent net yield based on this breakeven cost, it would need a gross monthly rental of about $14 per square foot.’

‘This is a location with a lot of growth potential because this part of Sengkang has a good mix of existing public housing and landed homes (in the nearby Yio Chu Kang and Seletar areas). In addition, there’s potential for more middle-class public housing to be built in the area. And then there’s the Seletar Aerospace Park. All these will provide a good catchment of shoppers for the proposed mall development on this site.’

Credo Real Estate executive director Ong Teck Hui too said: ‘It is timely for a new retail mall to cater to the residents in the locality, which is a growth area…According to HDB’s annual report, there are some 46,000 flats in Sengkang, while the projected ultimate is 90,000 units.’

Mr Ong attributes the strong response to yesterday’s tender to ‘optimism that suburban retail business will continue to do well in spite of slower economic conditions’.

‘A retail centre with a trade mix that caters more to the needs of heartlanders is likely to be well patronised by shoppers, thus ensuring its viability. Furthermore, many retailers are keen to establish footholds in new retail centres in order to grow their business,’ he added.

Other bidders at yesterday’s tender included Hong Leong Holdings unit Noscom Investments, Sim Lian and Mercatus Retail Holdings (said to be linked to NTUC Income and NTUC FairPrice). Guthrie teamed up with Sun Venture to bid $629.90 psf ppr.

Other bidders included Mezzo Development, and Singapore Land unit SL Development. The lowest bid by Unique Capital was at $452 psf ppr.

SPH submits highest bid of $328 million for Sengkang commercial site

Singapore Press Holdings has topped a state land tender exercise for a commercial site in Sengkang with its bid of $328 million.

The $328 million bid works out to $1,156 per square foot per plot ratio (psf ppr) , higher than the $800 psf ppr price market watchers had earlier predicted.

Located at the junction of Sengkang West Avenue and Fernvale Road, the land site measures 94,618 sq ft and can potentially be developed into a landmark commercial development.

The competitive land tender saw a total of 12 developers vying for the plot that sits at the junction of Sengkang West Avenue and Fernvale Road.

From HDB site,

Land Parcel at Sengkang West Avenue / Fernvale Road (Sengkang P2) for Condominium Development

Tender Launch Date : 21 Nov 2011
Tender Close Date : 17 Jan 2012

Note: A decision on the award of the tender will be made after the bids have been evaluated. This will be announced at a later date.