SINGAPORE (Apr 6): Perennial Real Estate Holdings' (PREH) strength is its ability to pair up with partners with significant capital to co-develop projects, says DBS Vickers.

PREH has entered into a joint venture (JV) with China's Qingjian Group to develop the 360,130 sf freehold residential site at Goodluck Gardens at Toh Tuck Road.

See: Perennial enters joint venture to develop former Goodluck Garden site

Perennial will take a 40% stake in the JV while Qingjian will hold the 60% balance.

With a plot ratio of 1.4 times, the permissible GFA comes up to 504,182 sf or 554,605 sf with 10% bonus balcony GFA.

The site was awarded to Qingjian for $610 million on Mar 8. With no further development premium payable for the site, DBS analyst Rachel Tan says the acquisition price translates into $1,100 psf with estimated breakeven price close to $1,600 and launch prices from $1,750-1,800 psf onwards.

Assuming on average a 700sf unit size, the redevelopment of the site could yield close to 720 units. Total gross development value (GDV) could range up to $970 million-$1.1 billion.

PREH’s capital commitment for its 40% stake in the project is estimated to be $96.5 million. Assuming 70% debt financing for the project will imply a total commitment of $321 million.

Tan notes there are not many newly completed properties in the quiet neighbourhood, but transaction quantum average around $1.5-2.0 million given the larger unit sizes. A quick check shows that asking prices in the secondary market for the development have risen to about $1,500 psf, adds Tan.

However, given the ageing estate, en-bloc activities in the vicinity have been active. SP Setia’s Daintree Residences, won in February 2017 with a bid of $940 psf, is reportedly ready for launch with launch prices starting from $1,600 psf onwards.

Tan says one of PREH's strength is its ability to pair up with partners with significant capital to co-develop and share development risk with the group.

While Tan sees Qingjian sharing the project risk with PREH, she notes that the PREH-Qingjian consortium have placed in two bids for the Holland Village GLS site, and if awarded, will add significant exposure to the Singapore property market.

Qingjian itself has two sites in its stable, with Shunfu Ville being the other and have over 1,900 units to be launched in the coming quarters, worth over $2.5 billion in GDV.

DBS is reiterating its "buy" call with $1.05 target price.

As at 2.34pm, shares in PREH are flat at 86 cents or 0.52 times FY18 book value.