Award of Land Tender at Fernvale Close. After repeated bidding attempts (See Figure 1), FEOR has finally won the HDB GLS tender at Fernvale Close (99-yr leasehold), jointly with Frasers Centrepoint (FCL) and Sekisui House for S$256.98m (or SGD533/psf). The land parcel sits on a site area of 161k sqft and has a GFA of 482k sqft, with estimated capacity of 495 dwelling units. FEOR’s capital contribution is 30% while that of FCL and Seikisui will be 40% and 30% respectively.

Add 4 S-cts to our RNAV. We estimate breakeven cost at SGD860 psf and ASP of SGD1,000 psf. This is comparable to the nearby H2O residences (total 521 units) by CDL, which has an ASP of ~SGD939 psf. The new development adds 4 S-cts to our RNAV. According to URA, H2O residences is about 94% sold as of May 2013. We are expecting Fernvale Close to be launched in 2014 and completed by 2017.

Overhang of Australian Acquisitions. Year-to-date, FEOR’s share price has lagged the STI index by ~8% because of the overhang of the Australian acquisitions. Recall that FEOR announced in Apr that it is looking at acquiring five Australian Hospitality assets and the hospitality management business of Toga Group (50% stake) for SGD285m and three Australian Hotels and existing hospitality management business of Straits Trading Company (STC) under a 70%-30% JV (issue price of SGD236.2m for 70% stake). Clients we spoke to remain concerned about the viability of the Australian hospitality business, and the weakening prospects for Australian commodities following China’s slowing economic growth.

Ascribe a bigger Residential Discount. The SG government ten-year bond yield has risen sharply by more than 70 bps to 2.10% in a month’s time, partly driven by Ben Bernanke’s congressional testimony on 21 May. The S-REITs market has so far corrected by ~11% since then, and we expect the resulting rate hikes to cause physical cap rates to expand moving forward. We thus ascribe a larger 35% discount (prev. 25%) to our residential RNAV, given that FEOR’s developments are primarily onshore and it is a mid-cap developer. Maintain BUY with a reduced TP of SGD2.28 (prev. SGD2.50)

Source: Maybank Kim Eng Research - 19 Jun 2013