A-REIT – OCBC

A-REIT tops bid for site at Fusionopolis

Highest bid for Fusionpolis Link. A-REIT has submitted the highest bid of S$110m for a site at Fusionopolis to develop a business park. The public tender for the 6,253 sqm site at Fusionopolis Link by industrial landlord JTC Corp, which was launched on 28 Feb and closed on 20 May, attracted seven bids. The site, which lies within the 200-hectare one-north development housing research facilities and business parks, has a 60-year land lease and is on the confirmed list of the government’s industrial land sales programme for 1H11. It has a maximum plot ratio of four and can be developed up to 160 metres above sea level. The project completion period is slated for 24 months. A-REIT’s bid at S$110 million was 29% above the next-highest bid by Mapletree Trustee Pte Ltd and more than doubled the bids by Soilbuild Group and Cambridge Industrial Trust, respectively.

Development plan. If awarded the site, A-REIT will develop a suburban business facility of 25,000 sqm GFA comprising 60% business park space and 40% office space to cater to prospective tenants in the ICT and media industries as well as R&D activities in physical science and engineering. The strategic location of the site will also reinforce A-REIT’s presence and market share within the business & science parks segment while achieving economics of scale in operations.

Maintain HOLD. According to A-REIT, the total development cost of the property is not expected to exceed 3.3% of its deposited property (S$5.4b) as at 31 Mar. With land acquisition cost of S$110m, this works out to approximately S$68.8m of construction costs (or S$2,752 psm) in the worst case or total development cost of S$7,150 psm. On a GFA psm basis, AREIT’s recent acquisition of Neuros & Immunos (already developed), completed on 1 Apr, cost S$3,400 psm. This is at a 23% discount to A-REIT’s land parcel bid price of S$$4,398 psm for Fusionpolis Link. We also noted that another commercial site in the vicinity at North Buona Vista Drive, won by Ho Bee Developments on 5th Aug 2010, cost S$3,684 psm then. Based on these deals, A-REIT’s bid price may be on the high side. Nonetheless, A-REIT has additional debt headroom of S$434m before hitting the 40% gearing level as at 31 Mar. This gives it more than sufficient fund to develop this project. Pending the final award of the tender, we have not yet factored in contributions from the new site in our valuation. Maintain HOLD with an unchanged fair value S$2.04.