IOI PROPERTIES' roping in of Hongkong Land to co-develop Central Boulevard in Singapore has many positives, analysts say, as it would ease its cash flow burden and at the same time enhance the value of the development as direct underground and overhead links can be built to adjoining buildings held and managed by the latter.
A memorandum of agreement was signed on Monday under which HKL's wholly-owned subsidiary Hongkong Land International Holdings (HKLI) would acquire 33 per cent of the joint-venture company for the development of the white site - a development that should prompt a rerating of IOIP since "investors' concerns over its gearing are now removed", RHB Research said in a client note on Tuesday.
It is maintaining its buy call on the stock - currently trading at around RM2.12 - with a target price of RM2.57.
In November, IOIP's wholly-owned subsidiary Wealthy Links Pte Ltd won a tender for the 1.1-hectare prime land sited next to One Raffles Quay for a record S$2.57 billion or S$1,689 per square foot per plot ratio. The JV plans to erect two office towers of 1.26 million sq ft of net leasable space and a retail podium of 30,000 sq ft. Work is scheduled to commence at the end of this year or early next year.
Pending formal establishment of the JV, TA Securities is maintaining its hold recommendation on IOIP with an unchanged target of RM2.25.
Even so, it agrees the proposed JV would help reduce project funding and execution risks. It believes that at least 75 per cent of the total allowable gross floor area of 141,294 square metres is likely to be retained as investment properties. "This would imply huge capital expenditure requirements for this project over the next seven years," it says in a report, noting IOIP's net gearing as at end-March was 0.64x - more than double the sector average of 0.3x.
TA Securities says IOIP's selection of HKL as a partner was well-considered because of its expertise in managing prime office land and high-end retail assets which the Malaysian developer - nearly 60 per cent owned by plantations tycoon Lee Shin Cheng - could leverage.
"We also believe that HKL's presence will help accelerate development activities on site and ensure timely launch of the project. The JV could also tap on HKL's large pool of clientele to fill up the new commercial space," it notes.
Arguably, the most compelling part of the deal is the direct linkages that can be established between One Raffles Quay and Marina Bay Financial Centre as Central Boulevard is sandwiched between the two properties. "We think there would be seamless connectivity between these buildings as they share the same asset manager in HKLI," RHB said.
The formalisation of the JV agreement is subject to approvals from the Urban Redevelopment Authority, since the shareholding structure will change, and Bank Negara, owing to a change in the corporate guarantee relating to the bridging loan and novation of shareholder loan.