Tanjong Pagar Centre game-changer for GuocoLand

GUOCOLAND, controlled by Malaysian tycoon Quek Leng Chan, recently completed Guoco Tower - the office component of its integrated mixed-development project, Tanjong Pagar Centre, on a 99-year leasehold site above Tanjong Pagar MRT Station.

The mainboard-listed property group has announced that 80 per cent of the 890,000 sq ft net lettable area of office space has been committed, that is either leased or subject of advanced leasing discussions. Guoco Tower obtained Temporary Occupation Permit (TOP) in September.

At the same time, part of Tanjong Pagar Centre's 100,000 sq ft retail component also received TOP. The rest of the retail space as well as the 222-room Sofitel Singapore City Centre and a 181-unit residential component are slated to receive TOP in stages from late this year to early next year. The retail component is more than 80 per cent committed.

Office and retail tenants have started to move in.

The mixed-development project has an estimated gross development value of S$3.2 billion. GuocoLand paid S$1.708 billion or S$1,006 per square foot of potential gross floor area for the Tanjong Pagar Centre site, which it clinched at an Urban Redevelopment Authority tender in 2010.

Now, Tanjong Pagar Centre is set to transform GuocoLand, significantly boosting its recurring income base. The Business Times' back-of- the-envelope calculation shows that when the asset is fully operational and has stabilised, it could generate Ebitda (earnings before interest, tax depreciation and amortisation) of around S$93 million per year.

This assumes that the office and retail components have been fully leased at average gross effective monthly rentals of S$9 per square foot for the offices and S$15 psf for the retail space; it also assumes that the hotel commands an average room rate of S$400 per night with 80 per cent average occupancy.

GuocoLand owns 80 per cent of Tanjong Pagar Centre - the Employees Provident Fund of Malaysia holds the balance 20 per cent stake - so GuocoLand would stand to receive an annual Ebitda boost of about S$75 million for its attributable share of Tanjong Pagar Centre.

This will help augment GuocoLand's pool of recurring income, which currently is pretty small - from sources such as the 20 Collyer Quay office block in Singapore, a few hotels in Shanghai and Malaysia, and a small mall within the Guoson Centre mixed-development in Shanghai.

Once Tanjong Pagar Centre is stabilised, this huge leap in recurring income from the office, retail and hotel components will not only provide ballast to GuocoLand's earnings, but will also smoothen the volatility in income from property development. As well, the stable cashflow will enhance the group's resilience and enable it to seize growth opportunities.

Besides anchoring the group's ambitions of building a strong base of recurring income, Tanjong Pagar Centre will generate property development income from the sale of apartments in the 181-unit Wallich Residence, sitting atop the offices in a 64-storey tower.

Apartments start from level 40, at a height of about 190 metres. So far 16 have been sold - all at above S$3,000 psf. The group will likely launch a fresh marketing campaign when the residential component has been completed around early 2017, to give potential buyers a sense of the views they will enjoy from the height.

Wallich Residence's 21,108 sq ft super penthouse on the top three levels of the 64-storey tower reaches a height of 290 metres - making it Singapore's tallest residence.

Through these upmarket residences in the CBD, Tanjong Pagar Centre will reinforce another strategy GuocoLand has been building on in recent years - that of focusing on the high-end residential market.

In Bukit Timah, the group is left with just a three-bedroom penthouse at the 210-unit Goodwood Residence.

At another freehold completed project, the 381-unit Leedon Residence, GuocoLand is left with 109 units. The average price achieved so far is just below S$2,000 psf and the group could be mulling over a bulk sale. The group's next high-end residential project here will be a 450-unit condo in Martin Place on a site clinched a few months ago.

GuocoLand could tap a modest revival in investment interest in Singapore's high-end housing market, which took a more severe beating compared to other segments in the initial stages of the current residential downcycle.

In addition to Tanjong Pagar Centre, other drivers of recurring income could be in the offing for GuocoLand. Its Bursa Malaysia-listed subsidiary, GuocoLand Malaysia, is developing Damansara City in Kuala Lumpur. The project is expected to be operational in 2017 and GuocoLand Malaysia has retained within the development an office tower, a hotel and retail mall for recurring income. In the medium term, Singapore-listed GuocoLand itself could develop future phases of its Guoson Centre commercial site in Shanghai and retain them for rental income.

GuocoLand does seem to have some good things going for it. That said, it does not receive much coverage from stockbroking houses, principally because the stock is relatively illiquid. With Mr Quek controlling about 70 per cent of the company, the group has a small free float of about 21 per cent. The average daily volume for the counter over the past one year is 231,000 shares. This may be small for institutional following but could still be comfortable for some smaller funds and retail investors.

GuocoLand's market cap is S$2.3 billion. As at Sept 30, 2016, its gearing was 0.9 times.

Rumours periodically surface that Mr Quek could take the company private to take advantage of the discount at which it is trading.

Based on Tuesday's closing price of S$1.915, GuocoLand is trading at 44.5 per cent discount to CIMB analysts Lock Mun Yee and Yeo Zhi Bin's S$3.45 estimated revalued net asset value per share for the counter.

Source: Business Times, 2 Nov 2016