More details on joint development (NEUTRAL, S$2.00, TP S$2.02)
Joint venture to develop retail/office space at Jurong Gateway. Following the successful bidding of the 195,463 sqft (18,159.1sqm) site at Jurong Gateway (JG), CapitaMall Trust (CMT), CapitaMall Asia (CMA) and CapitaLand have revealed their plan to build a retail/office commercial centre at JG. The total development cost of the project will be ~S$1.5b for a total GFA of 960k sqft, implying ~S$1,560 psf development cost. The expected NPI yield on development cost is ~6%, which is favourable compared to CMT’s current 12-mth forward yield of 5.2%. We expect incremental DPU of ~0.5-0.6S¢ beginning FY14. After factoring the potential contributions from FY14 onwards, our TP is raised to S$2.02 based on DDM (COE: 8.0%; TGR: 2.0%). Maintain NEUTRAL.
CMT’s share of project is 30%. Under the joint tender agreement, CMT/CMA/CapitaLand will hold 30%/50%/20% stake in the development. The consortium has indicated that it intends to develop the site on a 60%/40% retail/office basis. The retail mall and office are slated to commence operations in Dec 2013 and Dec 2014 respectively. Given that this is a Greenfield site, there will be no DPU accretion to CMT in the next two years.
Strategic location comes at dearer price. The latest site to be awarded sits conveniently beside Jurong East MRT and bus interchanges. Although the land acquisition cost came in at S$1,012psf ppr, 56% premium to previous acquisition cost of land at Jurong Gateway Road in Jun 2010 (won by Lend Lease), the CMT/CMA/CapitaLand joint venture’s bid price was only 5.7% premium over second bidder’s tendered price. In addition, given that the MRT and bus interchange entrance/exit will be directly facing this newly acquired site at JG, we believe the price paid for this piece of land is reasonable. Based on pre-committed rents at JCube, we believe the retail/office rents at JG can hit S$16-18/S$6-8 psf pm. Coupled with assumed NPI margin of 75-80%, the NPI yield of the commercial development at JG is ~5-6%.
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