In a Thursday report, lead analyst Derek Song estimates the breakeven cost for the project to range from $1,697-$1,826 psf of gross floor area (GFA), or $2,121-$2,283 on psf of net lettable area (NLA) – which implies a price psf of NLA of between $2,333 to $2,511.
“Similar to the Central Boulevard site, the tender for the Beach Road land parcel highlights the undervalued status of the office Singapore REITs (S-REITs) which are trading below replacement cost,” notes Song.
“The Singapore portfolios for the various office S-REITs, which are predominately located in the CBD or more prime locations compared to the Beach Road site, are currently trading on an implied price of $2,100-2,500 per sq ft of NLA,” he adds.
Song has hence identified Keppel REIT (K-REIT) as his top “buy” pick at a target price of $1.23, as he believes it has the least tenancy risks among the office S-REITs with only 2.8% of leases due for expiry for the remainder of 2017.
“In addition, [K-REIT’s] Singapore office portfolio, at an implied price of c.$2,500 per sq ft, is at a discount to comparable buildings in recent market transactions, the proposed office block on the Central Boulevard site (implied price in excess of $3,000 per sq ft on a completed basis) and rumoured bid for Asia Square Tower 2 by CapitaLand at $2,800 per sq ft,” says the analyst.
As at 10.36am, units of K-REIT are trading 0.4% higher at $1.15.
