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

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.

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.