CIMB Research said the substantial size and location of the South Beach development, which was close to other landmarks such as Suntec City convention centre and Raffles hotel, would make this project one of the most popular and prominent mixed-use development.
“But, this is partially offset by our concerns over the group increasing exposure to the property sector that has subdued outlook,” it said in report yesterday.
There were some concerns about Singapore's property outlook based on its government cooling measures and moderating home sales.
On Jan 13, it imposed tighter borrowing limits and a hefty stamp duty of 16% of the selling price for those who buy and sell within 12 months.
Last Friday, IOI Corp announced that its wholly-owned IOI Consolidated (Singapore) Pte Ltd, had subscribed 114.8 million shares or 49.9% equity interest in Scottsdale Properties for a cash consideration of S$114.8mil.
The other partner in Scottsdale is Ascent View Holdings Pte Ltd, wholly-owned by City Developments Ltd with 50.1% stake.
Scottsdale is involved in the development of South Beach property project with sizeable office, hotel, residential and retail components. Scottsdale holds a 66.66% stake in South Beach Consortium (SBC) while IOI Corp holds a 33.33% stake.
IOI acquired the stake in SBC from Elad Group for S$173.9mil. It was completed in April 5.
Also, IOI Corp and Ascent View might be required to contribute further equity in proportion to their respective shareholdings in Scottsdale (which is estimated to be in the region of S$500mil each) for the purpose of acquiring/redeeming the existing mezzanine notes that were earlier issued by SBC, for working capital requirements and to part finance the construction of South Beach.
In total, IOI Corp will invest S$816.8mil in the South Beach project that sits on a total land area of 376,925 sq ft which has a leasehold tenure of 99 years.
CIMB Research said the South Beach project was expected to be completed in 2015 and earnings would only start to trickle in 2013.
“Assuming a capital value of S$2,312 per sq ft, we estimate the gross development value of the project to be around S$2.3bil. With a supposedly a 20% profit margin, we estimate potential earnings of S$462mil.
“IOI Corp's earnings from its 49.9% share is expected to be about S$230mil,” it said.
Another bank-backed research analyst said although the acquisition price was quite attractive, it was not as relevant as the property market sentiment in Singapore as far as IOI Corp's investment was concern.
“With its government measures to cool down the property market there, we have no idea where the prices are heading from now on,” she said.
She added that the property sector commanded more than 20% of IOI Corp's operating profit while the rest was contributed by the plantation sector in its previous financial year ended June 30, 2010.
By The Star
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