IOIPG has won a bid to purchase a 1.93-acre land in Marina View (Singapore) earmarked for mixed development for SGD1.508b (RM4.68b). Note, IOIPG was the sole bidder for this land as of tender closing date on the 21 Sept 2021. Mildly negative as (i) net sellable area of the development i.e. the residential component may not be able to recoup initial development costs ploughed in as there is a compulsory hotel component to be built and (ii) its net gearing will stretch to 0.71x (from 0.47x) post-acquisition. Maintain MP with unchanged TP of RM1.32.

Land usage. With a plot ratio of 13x, this land purchased from URA (Urban Redevelopment Authority) translates to a maximum gross floor area (GFA) of 1.09m sf of which: (i) a minimum of 0.55m sf is allocated towards residential and (ii) a minimum of 0.28m sf is allocated for a hotel. The remaining GFA of 0.26m sf can be allocated to residential/hotel/service apartments/commercial1 upon approval. The land purchase is expected to complete by 4QCY21 and the entire development should complete within the following 84 months (7 years). Management guides that the development should commence within the next 1.5-2 years.

1Max commercial space area allowed is 2k sq m (or 21.5k sf).

Compulsory hotel component a baggage. Our preliminary calculations indicate that this development could fetch a GDV of SGD2.7b-3.0b (based on SGD2,5002 to SGD2,800 psf per plot ratio). Nonetheless, 0.28m sf of GFA must be allocated for hotel component and thus – sellable component for this development is only c.SGD2.0b- 2.4b. And given that total development costs (including land) would cost c.SGD2.4b (same or lesser than net sellable component) – this may not be favourable from a developers’ cash flow perspective as they would need to finance the hotel while constructing the residential portion of the development. Coupled with the fact that hotels are not the most favourable asset class at this moment (due to Covid-19), this could be the reason IOIPG is the sole bidder for this land.

2The nearest residential development being Marina One (completed in 2018) has an average selling price of SGD2500psf.

Balance sheet strain. With this acquisition, IOIPG’s net gearing will increase to 0.71x (from 0.47x) – a slight stretch in our opinion. In their last land acquisition in Singapore - Central Boulevard land (SGD2.57b) back in Nov 2016, its net gearing hit 0.7x and they called for a rights issue to raise RM1.5b. Nonetheless, we think it is less likely for a rights issue this time around as Central Boulevard was a pure investment property (office) with no sellable component attached to it - thus more cash flow intensive during the development stage.

Mildly negative. Overall, while residential demand in Singapore is extremely buoyant at this juncture; unless this lands’ residential component can sell at >SGD2,800psf (which we opined is a stretch based on surrounding transaction prices), we are mildly negative on this land tender due to the negative impact on its balance sheet.

As interest cost relating to the development would be capitalised, there is no change to our FY22/23E earnings forecast. Hence, keep MP with unchanged TP of RM1.32 pegged to 0.37x FY22E PBV.

Source: Kenanga Research - 30 Sept 2021