Despite the rally, developers remain inexpensive on a price-to-book basis, say Lim and Lee in a Jan 27 research note. At 0.7 times price-to-book (P/B), the sector continues to screen as cheap relative to other sectors like consumer (one time), financials (two times) and telcos (three times), they add.
Small- and mid-cap (SMID) names, in particular, are trading below their net asset values (NAV).
“At these levels, modest multiple normalisation can be powerful,” they add. “A move from 0.2 times to 0.3 times P/B implies 50% upside potential and would be easier to underwrite than a comparable 10 times to 15 times P/E rerating, which would invite greater scepticism.”
That said, property developers are trading near the upper end of their 10-year valuation range. “On a backward-looking basis, that can read as expensive. We disagree as the market’s lens appears to have shifted. We believe valuation is no longer anchored to asset backing alone, but to the credibility of value-unlock [like the equities market review group’s proposals] and the probability of capital being recycled efficiently,” according to UBS.
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Corporate action
Developer earnings are more sensitive to capital recycling, balance sheet optimisation and portfolio reshaping, note Lim and Lee.
Divestments, partial stake and joint venture monetisation can release trapped capital, lift return on equity (ROE) and lower the cost of equity. These actions should also dampen earnings volatility, according to the analysts.
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Capital recycling is the “most over-discounted earnings lever”, with City Developments (CDL) as an example.
CDL’s balance sheet continues to carry mature, low-return assets that dilute group ROE, say Lim and Lee. Divesting or partially monetising these assets would simultaneously improve returns, strengthen the balance sheet and create capacity for higher-return reinvestment or shareholder distributions, they add. “As capital is freed up, buyback programmes could also become more credible in both scale and execution.”
Attention is likely to broaden beyond individual developers to “platform-level restructuring”, say the analysts. Singapore’s two biggest real estate platforms — CapitaLand Investment and Mapletree Investments — could move into sharper focus following recent reports about a potential combination.
REITs have less scope for surprises
By contrast, S-REITs have already delivered much of what investors were seeking, say Lim and Lee. “Cash flows are visible and distribution growth remains constrained by financing costs. Without a sharper pivot towards recycling or accretive external growth, we think upside from here could be more limited.”
The spread between S-REIT yields and 10- year government bonds has also reverted towards its historical mean, indicating that valuations now look “broadly reasonable” rather than “deeply discounted”.
Hence, UBS is staying “selective”.
Returns consistent with Singapore equities
Over the long run, the sector has delivered returns consistent with Singapore equities, notes UBS. Since 2010, when the property index data became available, developer share prices have closely tracked the broader market, with only three periods of divergence: developers outperformed in 2012 and 2017, and underperformed from 2022.
Last year was an inflexion point, says UBS, with developers’ index prices surpassing those of S-REITs and converging with the Straits Times Index (STI).
The recent share price rally, alongside a lift in P/B multiples, suggests the market is beginning to price in expectations of a recovery in ROE, write Lim and Lee.
Execution is key
The ball is now in the developers’ court to prove that asset divestments and share buybacks can translate into sustained improvements in earnings per share (EPS), NAV per share and ROE.
The combination can be “meaningfully accretive” if several conditions are met, say Lim and Lee.
First, developers must commit to selling lower-yielding assets. These are defined as assets that generate returns below the group ROE.
“This is best viewed as portfolio optimisation rather than a reflection of asset quality. In many cases, assets with significant fair value gains embedded may now offer lower running yields. Recycling these assets can lift group ROE while freeing capital at prices above historical cost for redeployment into higher-return opportunities,” they add.
Second, scale matters. A divestment equivalent to 5% of the asset base is sufficient to generate visible accretion, say the analysts, “assuming pricing discipline holds”.
The risk lies in buyer depth, they add. “Accretion diminishes if asset sales begin to pressure valuations.”
Third, buybacks must be executed at a price below book value, note the analysts. Reducing the share base at a discount accelerates pershare EPS and NAV growth. Buybacks above book are less effective and, beyond a threshold, can dilute NAV per share and slow earnings accretion.
Identifying SMID developers
To identify SMID developers with the greatest potential to unlock value, UBS first focuses on names with high net cash balances — defined as cash on hand net of financial liabilities.
“Within our coverage, relatively few names meet this criterion,” they note. “Narrowing the lens further to stocks trading below 1.0 time P/B highlights a subset where buybacks are both feasible and accretive.”
Through this lens, two names stand out: Boustead Singapore and Bukit Sembawang Estates.
UBS then looks for SMID developers “where value compounds quietly on the balance sheet”. “Assets are typically carried at development cost, while market values tend to accrue over time.
At a later stage, management may articulate strategies to monetise the gap between market value and book value through spins-offs, divestments or capital management action.”
Some recent examples include LHN listing its co-living arm Coliwoo in November 2025, Centurion Corporation spinning off Centurion Accommodation REIT in September 2025 and GuocoLand exiting its 27% stake in Bursa-listed Eco World International (now EWI Capital Berhad) in May 2024.
Three steps to find ‘value-creation candidates’
A recurring feature among successful SMID developers is a “visible compounding pattern” in EPS, DPS and NAV per share that emerges “well ahead of any formal corporate action”, says UBS.
The analysts share three steps to discover companies capable of “multi-year execution”.
• Stage 1: Scan for book-building
The first screen focuses on developers in the asset accumulation phase. Growth in development and investment properties signals portfolio build-out, says UBS. “This, in turn, reflects both project availability and balance sheet capacity to fund expansion.”
• Stage 2: Track early maturity and cash flow ramp-up
As the asset approaches operational maturity, income generation becomes the key indicator, according to UBS. “EPS growth tends to lead, accelerating during the initial ramp-up phase as occupancy improves, before normalising as assets stabilise.”
• Stage 3: Identify mid- to late-maturity and value crystallisation
At this stage, assets are typically completed and recorded at fair market value. Fair value gains lift both EPS and NAV, often prompting management to explore monetisation options, according to UBS. “Partial stake sales, REIT spin-offs or other capital action are options to convert embedded value into realised gains.”
By applying this framework, three developers screen as showing “strong asset growth, EPS momentum and NAV per share expansion” — labelled in green — while two names are “earlier in the value-creation cycle, where the underlying build-up is visible but monetisation remains optional” — labelled in blue.
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