real estate development

RE3103 REAL ESTATE DEVELOPMENT

Consultants Daniel Hong Kay Yeong (A0110994A)

Tan Pang An Leonard (A0116560M) Merilyn Milyarti Wantasen (A0112993B)

Koh Jin Rong (A0111822W) Tan Si Ying (A0112851N)

Shabrina Khan (A0116494B)

Specially Prepared for Joseph T.L Ooi

s

Introduction The proposed development on Central Boulevard will comprise of a 4-storey podium and a 50-storey tower consisting of 66% office, 18% residential as well as 16% hotel. Based on this proposed typology, the report will provide a comprehensive review of the client’s corporate objectives, proposed joint venture partners as well as an in-depth analysis of the current and prospective profitability of the project.

Overview The required rate of return on shareholders’ equity for mixed-use developments in Marina Bay is determined in the capital markets. The required rate of return from the capital market is used to determine the discount rate for the development of the Central Boulevard site. This ensures that the discount rate commensurates with the level of risk involved in the project. The financial feasibility of this development project is carried out using a Discounted Cash Flow (DCF) model and the Monte Carlo Simulation. These models assist in computing the Risk-to-Reward ratio (COV), Net Present Value (NPV) and Internal Rate of Return (IRR) at various levels of Loan to Value (LTV) scenarios. Inputs in the Monte Carlo Simulation are based on the market analysis and historical data extracted from Real Estate Information System (REALIS). The above investment metrics can be found in the Appendix attached.

Summary of Results This report will establish the rationale behind developing in Central Boulevard and will demonstrate the strategic alignment of this project with Keppel Land’s corporate objectives. Firstly, the development of Central Boulevard is in line with Keppel Land’s corporate objective of focusing on core markets. Marina Bay, Singapore is Keppel Land’s key market and the development of this site will allow Keppel Land to have greater dominance and influence over dictating office rentals and leasing agreements. Secondly, acquiring this land site will allow Keppel Land to execute the acquisition phase of its capital recycling strategy. Keppel Land has made several divestments in 2014 and is still looking for strategic opportunities such as this site to reinvest its capital. Thirdly, undertaking this project will allow Keppel Land to grow its fund management business. In the proposed exit strategy, Keppel Land can divest the office and hotel components to Keppel REIT and Alpha Investment Partners respectively. This allows both fund managements vehicles to grow in assets under management. Fourthly, developing this site will provide Keppel Land with the opportunity to invest in new partners and new platforms. The proposed development of this site will require Keppel Land to forge a new business relationship with the Mandarin Oriental Hotel Group and officially venture into the Singapore hospitality market. Therefore, it is in the utmost interest of Keppel Land to bid high to maximise the probability of securing this site. Based on the results from the Monte Carlo Simulation, we recommend Keppel Land to take an 80% LTV ratio for this project and submit a tender bid of $1,990,000,000. This translates to an initial equity outlay of $457,700,000 based on a total expected development cost of $2,886,361,238. The expected NPV is $5,460,000 while the expected IRR is 16.02%.

Executive Summary

s Joint Venture We recommend Keppel Land to form a joint venture consortium with Hongkong Land and Cheung Kong Property Holdings, with each partner holding a 33.3% equity stake. This will curtail the initial equity outlay and total development cost to approximately $152,567,000 and $962,120,000 respectively.

Limitations Developing in Marina Bay requires a substantial amount of capital and Keppel Land will be exposed to several unique risks that are associated to this project. These risks include office and residential dependent returns, the presence of negative cashflows as well as the threat of surrounding white site developments. These risks can be mitigated by drawing upon a more competitive loan with a longer fully-amortized term, stronger marketing efforts of office space and residential units as well as asset enhancements initiatives.

Executive Summary

CHAPTER 1: SITE & LOCATIONAL ANALYSIS 01

1.1 Site Description 01

1.2 Development Constraints 02

1.2.1 Greenery Replacement 02

1.2.2 Building Edge 02

1.2.3 Pedestrian Network 02

1.2.4 Activity-Generating Uses (AGU) 02

1.2.5 Pocket Park 02

1.2.6 Vehicular Access 02

1.3 Locational Analysis 03

1.4 SWOT Analysis 04

CHAPTER 2: SELECTION OF DEVELOPER 05

2.1 Decision 05

2.2 Keppel Land Structure 06

2.3 Keppel Land Business Model 06

2.3.1 Property Trading 06

2.3.2 Property Investment 07

2.3.3 Keppel REIT and Alpha Investment Partners 07

2.3.4 Keppel Land Hospitality Management 08

2.4 Keppel Land Financials 08

2.4.1 Revenue 08

2.4.2 Net Profit 09

CHAPTER 3: RATIONALE FOR TENDER 10

3.1 Corporate Objectives 10

3.1.1 Focus on Core Markets 10

3.1.2 Capital Recycling Strategy 10

3.1.3 Grow Fund Management 10

3.1.4 Strategic Investment in New Platforms 10

3.2 Strategic Location 10

3.3 Profitability 11

CHAPTER 4: ECONOMIC OVERVIEW 12

4.1 Singapore’s Economic Growth 12

4.2 Singapore’s Interest Rates and US Federal Interest Rate 12

CHAPTER 5: OFFICE MARKET ANALYSIS 13

5.1 Supply 13

5.2 Demand 14

5.3 Vacancy & Rental Rate 15

5.4 Capital Value 15

TABLE OF CONTENT

5.5 Competitive Analysis 16

5.5.1 Keppel Land’s Existing Developments 16

5.5.2 Other Competitors’ Developments 17

CHAPTER 6: HOTEL MARKET ANALYSIS 18

6.1 Supply 18

6.1.1 Government Policy 18

6.1.2 Supply Pipeline of Luxury Hotel Rooms 18

6.2 Demand 18

6.2.1 BTMICE 18

6.2.2 Annual Visitor Arrival 19

6.3 Occupancy Rate, ADR RevPAR 19

6.4 Capital Value 20


CHAPTER 7: RETAIL MARKET ANALYSIS 22

7.1 Supply 22

7.1.1 Supply Pipeline of Retail 23

7.2 Demand 24

7.2.1 Visitor Arrival 24

7.2.2 Leasing Market 24

7.2.2.1 Retail Sales Performance 24

7.3 Vacancy 25

7.4 Conclusion 25

CHAPTER 8: PRIVATE RESIDENTIAL MARKET ANALYSIS 26

8.1 Launch and Primary Sales Volume 26

8.2 Upcoming Supply and Unsold Stock 26

8.3 Prices 27

8.3.1 High-End Market 28

8.4 Market Outlook 29


CHAPTER 9: DEVELOPMENT PROPOSAL 33

9.1 Proposed Development 33

9.1.1 Design Philosophy 33

9.1.2 Design and Architect Management 33

9.1.3 Landscape Architect 33

9.2 Site Plan 34

9.2.1 Open Green Space 34

9.2.2 Vehicular & Pedestrian Access 34

9.3 Product Development 35

9.3.1 Office 35

9.3.2 Hotel 36

9.3.3 Residential 37

CHAPTER 10: FINANCIAL ANALYSIS 39

10.1 Investment Timeline 39

10.2 Debt Structure & Interest Rate 39

10.3 DCF Model & Monte Carlo Simulation 40

10.3.1 Open Market Valuation (OMV) 40

10.3.2 Funding Structure & Land Bid 40

10.3.2.1 Scenario 1 41

10.3.2.2 Scenario 2 42

10.3.2.3 Scenario 3 43

10.4 Conclusion 44

CHAPTER 11: JOINT VENTURE 45

11.1 Rationale for Joint Venture 45

11.1.1 Healthy Financial Position 45

11.1.2 Bankruptcy Risk 45

11.1.3 Joint Expertise 45

11.1.4 Proficient Management Subsidiary 46

11.1.5 Joint Venture Flaws 46

11.2 Proposed Joint Venture Structure 46

11.2.1 Development Cost after Joint Venture 47

11.3 Exit Strategy 47

CHAPTER 12: UNIQUE RISKS ANALYSIS 12.1 Office and Residential Dependent Return 48

12.2 Potential Presence of Negative Cashflows 49

12.3 White-Site Concentrated Area 49

APPENDIX I: DISCOUNTED CASHFLOW (DCF) ASSUMPTIONS

APPENDIX II: UNLEVERED DCF 0% LTV

APPENDIX III: LEVERED DCF 60% LTV

APPENDIX IV: LEVERED DCF 70% LTV

APPENDIX V: LEVERED DCF 80% LTV

APPENDIX VI: MONTE CARLO ASSUMPTIONS

APPENDIX VII: RESULTS FROM MONTE CARLO 0% LTV

APPENDIX VIII: RESULTS FROM MONTE CARLO 60% LTV

APPENDIX IX: RESULTS FROM MONTE CARLO 70% LTV

APPENDIX X: RESULTS FROM MONTE CARLO 80% LTV

REFERENCES

SITE & LOCATION

Summary

This section aims to present the characteristics of the subject site and provide a geographical analysis of its location. A SWOT analysis will be conducted to understand the feasibility of the site.

1.1 Site Description

Figure 1: Picture of Central Boulevard

The site is situated along Central Boulevard in Marina Bay. The site details are shown below.

Site Description: Central Boulevard Site Area 11,200 m2 Plot Ratio 13.0 Gross Floor Area (GFA) 145,600 m2 Zone* White Lease Period 99 Years Shape Fairly Regular Topography Slightly Unlevelled

Figure 2: Central Boulevard's Site Description

*(Minimum 60% of GFA allocated to Commercial Use)

1. Site & Locational Analysis

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1.2 Development Constraints The tender for site should obliged to the following requirements stipulated on Urban Design Plans and Guidelines for Downtown Core Planning Area.

1.2.1 Greenery Replacement Greenery replacement commensurating the site area in the form of roof gardens, sky terraces, planter boxes and any landscape area is required within the new development project.

1.2.2 Building Edge Based on the Building Edge Plan, the development must include a podium with minimum height of 19 metres or approximately 4-storeys.

1.2.3 Pedestrian Network 1. Underground Pedestrian Network (UPN) that offers direct access to Mass Rapid

Transit (MRT) Stations is to be incorporated. 2. Promenade through block link on ground floor facing the Central Boulevard and

Raffles Quay should be provided. 3. Elevated Pedestrian Network (EPN) in the form of a 2nd-storey pedestrian link must be

integrated to the development on the land parcel for connectivity between developments in the area.

4. Covered walkway on ground floor along the site boundary is required to serve as a public amenity.

5. 2 points of vertical pedestrian circulation connecting the UPN as well as the 2nd-Storey pedestrian link to the covered walkway on ground floor need to be included. Vertical pedestrian circulation comprises of two-way escalators and a passenger elevator.

1.2.4 Activity-Generating Uses (AGU) AGU includes retail, eating establishments, entertainment, sports and other similar uses. With reference to the AGU Plan, the development on the site should dedicate spaces on the 1st-storey fronting Central Boulevard for any of the AGU uses mentioned above. In addition, AGU should also be allocated alongside the UPN on basement Level and the 2nd-storey pedestrian link.

1.2.5 Pocket Park According to the Parks and Waterbodies Plan, a portion of the site area is to be reserved for open space. However, the exact proportion will only be known after the tender document is released on December 2015.

1.2.6 Vehicular Access Currently, there has not been any affirmed constraint regarding the vehicular access on the site due to the absence of tender document. However, there is a high possibility that any drop-off point and carpark entrance on the proposed development would not be feasible along Central Boulevard. This is evident in the case of Marina Bay Suites and One Raffles Quay.


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1.3 Locational Analysis

The subject site faces Central Boulevard on the north side. From this viewpoint, The Sail @ Marina Bay, Hong Leong Building as well as One Raffles Quay can be observed. Towards the south, the site faces Commerce Street with sights of Asia Square and One Shenton. At the north-eastern end, the site fronts Marina View and enjoys a panoramic view of the sea. Marina Bay Financial Centre can be observed from the eastern point of the site. The old Central Business District (CBD) has been in operation for many decades. Some existing infrastructure has either been non-relevant or unable to cater to the changing needs of businesses. As Singapore continues to be a regional hub for international businesses, the government has placed much focus into Marina Bay as the new CBD. This is to ensure that Singapore continues to stay relevant, being able to attract large multi-national corporations. In the Urban Redevelopment Authority (URA) Master Plan 2014, the Marina Bay area is manifested with white sites intended for commercial, hotel, residential, sports, recreational and other such uses. Being located just a stone’s throw away from the Downtown MRT station, the site is highly accessible. In addition, the subject site is served with a comprehensive transport network system such as Ayer Rajah Expressway (AYE), Marina Coastal Expressway (MCE), East Coast Parkway (ECP), Central Expressway (CTE) and North South Expressway (NSE)


The Sail @ Marina Bay Hong Leong Building One Raffles Quay

Marina Bay Financial Centre

One Shenton Asia Square

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Future plans of the Thomson-East Coast Line (TEL) announced by Land Transport Authority (LTA) will further augment the site’s accessibility. The 43km TEL will grant dwellers from the north, north-east and eastern region of Singapore improved access to Marina Bay. Commuters can start enjoying the service of this MRT by 2019.

1.4 SWOT Analysis

A SWOT analysis is conducted to understand the feasibility of the site.

Strength

Comprehensive Transportation Network

Seamless underground network connectivity

Uninterrupted Sea View

Regional Financial Hub

Weakness

High development and land cost

Surrounding iconic developments

Development Constraints

Opportunity

Large MNC corporations may relocate to

Singapore for stability

Planned to be a vibrant and dynamic district

TEL completed by 2019

Threats

Unreleased land parcels in the Marina Bay

area

Interest rates for borrowing are expected to

rise

Companies decentralising away from the

CBD


Figure 3: 43km Thomson-East Coast Line

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DEVELOPER

Summary

Keppel Land is chosen as our client due to its strong financial health and strategic positioning in the New Downtown, making it the ideal candidate to tendering for this site.

2.1 Decision

Given the prime location of the site, it is unsurprising that the site will receive the limelight among developers compared to other released land parcels in the reserved list as well as a high tender bid. With the expectedly extravagant development cost, well-established developers with healthy financial standings and financial means are at the top list of the considerations. The following chart summarises the financial health of distinguished Singapore-based developers as of Q2 2015.

As shown in the figure above, Wing Tai Holdings has the leading financial health in terms of net debt to equity ratio. Wing Tai Holdings had previously unveiled an interest to create a presence in the Downtown Core area. Wing Tai Holdings and its joint venture partners used to bid for the land parcel of Marina Bay Financial Centre but failed to secure the land. Thus, it is reasonable to favour Wing Tai Holdings as our developer client due to their expected immense interest for this site. Nevertheless, Keppel Land is selected as our client developer for this project instead. Keppel Land has a net debt to equity ratio of 0.25 as of Q2 2015, ranked after Wing Tai Holdings. Although Keppel Land’s financial health does not commensurate to those of Wing Tai Holdings, it is superior against the other developers listed in the chart. It is also important to expand the criteria for selecting a client developer beyond merely financial health and contemplate on other relevant elements. Keppel Land is chosen after reviewing its renowned establishment in the Marina Bay area. It has various supplementary developments within close proximity to the tendered land parcel. This includes One Raffles Quay, Marina Bay Financial Centre and Ocean Financial Centre. In regards of this, Keppel Land will have the ability to dominate this area. Therefore, it is presumed that it will be in Keppel Land’s interest to secure the tendered land parcel.

2. Selection of Developer

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Figure 4: Net Debt to Equity, Q2 2015

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2.2 Keppel Land Structure Keppel Land is the property arm of Keppel Corporation, one of Singapore's largest multinational groups with key businesses in offshore and marine, property as well as infrastructure. One of Asia's premier property businesses, Keppel Land is acclaimed for its exceptional portfolio of residential developments and investment-grade commercial properties as well as undeniable standards of corporate governance and transparency. Keppel Land was privatised and removed from the Singapore Stock Exchange with effect from 16 July 2015. This is following Keppel Corporation's voluntary unconditional cash offer for the remaining shares in Keppel Land which it did not possess. Keppel Corporation ended up owning 99.27% of Keppel Corporation after this exercise.

Figure 5: Keppel Land's Business Structure

2.3 Keppel Land Business Model

Figure 6: Keppel Land's Business Model 2.3.1 Property Trading Keppel Land has developed many residential properties in Singapore, China, Indonesia as well as Vietnam. In 2014, it has started venturing into new markets such as the United States. Keppel Land’s approach to real estate development has always been about Thinking UnboxedTM. It strives to create residential developments that are luxurious, innovative and timeless. This development ethos has resulted in Keppel Land being recognized as one of Asia’s premier real estate developers. Some of Keppel Land’s award-winning residential developments include Reflections at Keppel Bay and Corals at Keppel Bay. Both of these developments are designed by Pritzker Prize laureate, Daniel Libeskind.

KeppelCorporation

Keppel Offshore & Marine

Keppel Infrastructure

Keppel Land

Keppel Land

Property TradingProperty

InvestmentFund

Management

Keppel REIT

Alpha Investment

Partners

Hotels andResorts

Keppel Land Hospitality

Management


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2.3.2 Property Investment

Keppel Land’s portfolio of property investments consists of prime Grade A office buildings in Singapore, Indonesia, Vietnam and The Philippines. In 2014, Keppel Land has begun to aggressively scale up its commercial portfolio in existing overseas markets through redevelopment and acquisitions. Some of Keppel Land’s commercial properties include HarbourFront Towers and Keppel Towers. Even though many of Keppel Land’s Singapore commercial property investments have been divested to Keppel REIT, Keppel Land is still able to maintain exposure through its equity stake of 45.21% in Keppel REIT.

2.3.3 Keppel REIT and Alpha Investment Partners

Keppel Land has two established fund management vehicles - Keppel REIT and Alpha Investment Partners. Keppel REIT is a commercial real estate investment trust that has a Singapore and Australia centric portfolio. Some of Keppel REIT’s prime investment-grade properties include Marina Bay Financial Centre and One Raffles Quay that are designed by Kohn Pederson Fox Associates as well as Ocean Financial Centre that is designed by Pelli Clarke Pelli Architects. Alpha Investment Partners is an Asian focused real estate private equity fund that has commercial, residential as well as hospitality assets in Singapore, China, Hong Kong, Japan and South Korea. The combined assets under management of both fund management vehicles have reached $18.7 billion as of 2014.


Keppel Towers HarbourFront Towers

Corals @ Keppel Bay Reflection @ Keppel Bays

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2.3.4 Keppel Land Hospitality Management Keppel Land Hospitality Management is the hospitality arm of Keppel Land which manages hotels, serviced apartments, golf resorts as well as marinas in various geographical locations such as Singapore, China, Indonesia, Vietnam and Myanmar. Keppel Land Hospitality Management has over 20 years of experience operating in the hospitality sector. It manages its hotels and serviced apartments under the award winning 5-star hotel brand, Sedona.

2.4 Keppel Land Financials

2.4.1 Revenue

Keppel Land’s revenue grew by 2.48% in the financial year 2014. Revenue increased from $1.46 billion to $1.49 billion, driven mainly by the property trading segment. Divestment of Al Mada Towers in Jeddah as well as new revenue streams from the completion of Shanghai and Chengdu condominiums had helped offset the slightly weaker residential sales recognition in Singapore.

Figure 7: Keppel Land's Revenue Performance

685.4

949 938.9

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Ocean Financial Centre One Raffles Quay Marina Bay Financial Centre

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2.4.2 Net Profit Keppel Land’s net profit decreased by 15.06%, mainly due to the lower fair value gains on their portfolio of investment properties. Excluding the fair value gains, Keppel Land would have registered higher net profits due to the one-off gains from various divestments done throughout the year which includes the sale of Equity Plaza, Marina Bay Financial Centre Tower 3 and Prudential Tower.

Figure 8: Keppel Land's Net Profit Performance

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RATIONALE FOR TENDER

Summary

Keppel Land should participate in this tender as the acquisition of this site is strategically aligned with its corporate objectives.

3.1 Corporate Objectives

3.1.1 Focus on Core Markets Singapore is one of Keppel Land’s core markets and the company has interests in an array of investment-grade developments situated in the Marina Bay area. By tendering for this land parcel, Keppel Land is able to deepen its presence and potentially exert dominance in the Marina Bay area. This dominance will allow Keppel Land to have greater influence over dictating office rental and leasing agreements, leading to high rental and occupancy rates in their commercial developments. On the other hand, Keppel Land may have more aggressive competition for its existing development if it fails to secure the land.

3.1.2 Capital Recycling Strategy As part of Keppel Land’s capital recycling strategy, it has successfully divested and received net proceeds of $1 billion in the year 2014. Keppel Land has subsequently committed $1.1 billion in new and existing investments. However with $2.6 billion in cash and cash equivalents, Keppel Land is still looking for strategic investments. This is evident from its recent bid for Asia Square Tower 1 and $1.5 billion tender bid for a mixed-use site in Paya Lebar. Unfortunately, Keppel Land did not manage to secure both sites. Therefore, this tender site presents Keppel Land with an investment opportunity to allocate its capital and generate returns.

3.1.3 Grow Fund Management As Keppel Land seeks to grow the assets under management (AUM) in its fund management vehicles, a pipeline of acquisition properties provided by the sponsor is crucial. However, the acquisition pipeline for Keppel REIT is currently empty after the recent acquisition of Marina Bay Financial Centre Tower 3. This tender site allows Keppel Land to develop an office component which can be potentially divested to Keppel REIT, growing the REIT’s AUM.

3.1.4 Strategic Investment in New Platforms A key Keppel Land strategy in driving growth involves investing with new partners and in new platforms. This tender site provides the opportunity for Keppel Land to execute this strategy as it is a large white site that can be subjected to different land uses. One of the proposed components in this development which will be discussed later is a hotel component. The development of a hotel component will signify Keppel Land Hospitality Management’s official entrance into the Singapore hospitality market. Furthermore, Keppel Land is also in a position to forge new business relationships as we are recommending signing a management agreement with a reputable international hospitality chain.

3.2 Strategic Location The seamless connectivity of Central Boulevard coupled with the agglomeration of financial institutions in the New Downtown financial district ensures that there is sustainable demand for office spaces in this area. Given Singapore’s stable political background as well as her reputable status as a regional hub, there will always be multinational corporations that would consider establishing their corporate offices in the prestigious New Downtown. In addition, URA has given developers more flexibility through white site zoning. This allows them to exert

3. Rationale for Tender


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creative land use typologies when developing projects, resulting in greater vibrancy of the area. As a result, it can be expected that Central Boulevard will flourish with many exciting and attractive supporting amenities that would augment its value as the area develops. A project in this location would be in for the long-term prospects. Keppel Land can expect to benefit from long-term capital appreciation and valuation gains.

3.3 Profitability Following our recommendation, the return on investment for the new land is expected to reach 14% to 16% along with positive expected Net Present Value (NPV). These results can be found in the Financial Analysis section of the report later. These results are based independent of other projects developed by Keppel Land. If Keppel Land integrates this potential development with its current real estate portfolio, it will be able to unlock synergies and create new realms of possibility in improving investment return.

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ECONOMIC OVERVIEW

Summary

Singapore has experienced the slowest GDP growth since Q3 2012. Interest rates are expected to rise by the end of December 2015 unless significant adverse development arise in US economic data by then.

4.1 Singapore’s Economic Growth

The latest GDP annual growth rate shows that Singapore’s economy grew slightly by 1.8% in Q2 2015, a decline from the 2.8% observed in the previous quarter. It is the lowest GDP annual growth rate since Q3 2012. Based on Trading Economics (2015), the slower growth is primarily due to the shrinking of manufacturing sector accompanied by the significant contraction of trade-oriented services sector.

The overall GDP growth for Singapore in 2015 is expected to be within the range of 2% and 2.5%. This is a revised forecast from 2% to 4% by the Ministry of Trade and Industry (MTI) after the release of lower GDP annual growth rate in Q2 2015. The economy has performed poorer than anticipated in H1 2015 globally. According to Oxford Economics (2015), the overall GDP growth rate in 2015 is predicted to be 2.4%, softening from the GDP growth rate of 2.9% in 2014. The GDP growth

rate will only be expected to pick up in 2016 to 3.5%, stabilising at 3.3% to 3.7% until 2019. This is illustrated in Figure 1.

4.2 Singapore’s Interest Rates and US Federal Interest Rates Singapore’s prime lending rate as of August 2015 has remained low at 5.35% since January 2014. However, this rate may be expected to rise if US Federal Reserve proceed with their growth in interest rates. Earlier in January 2015, Monetary Authority of Singapore (MAS) has announced that interest rates in Singapore will rise in tandem with those in US. A hike in The Fed’s interest rate will also trigger heightened mortgage rate in Singapore. Recently, there has been numerous speculations on US Federal Reserve’s plans to increase

interest rates. The Fed’s interest rate has remained static at the range of 0% to 0.25% since

December 2008. The latest Federal Open Market Committee (FOMC) meeting in 16th and 17th

September resulted on the Fed’s decision to postpone the rise in interest rates. The restraint

is prompted by fragile economic recovery and the recent turmoil in the global economy. This

includes China’s economic slowdown, global stock market volatility and deteriorating

commodity prices. Nevertheless, the possibility of a hike in interest rates at the FOMC

Meeting in December still remains strong. 13 out of 17 FOMC gathered to determine interest

rates mentioned their intention to still raise it before January 2016 (The Telegraph, 2015).

According to Wharton Finance Professor Krista Schwarz (2015), The Fed have also virtually

promised to increase the rates in December unless significant adverse development arise in

US economic data by then.

4. Economic Overview

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Figure 9: GDP Forecast by Oxford Economics

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MARKET ANALYSIS

Summary

Market sentiments for Office, Hotel, Retail and Residential remain weak in 2015.

5.1 Supply

The overall shadow space available in Singapore doubles from 2014 to 2015. This resulted mainly from mergers and acquisitions undertaken by financial institutions as well as their scaling down on risky business propositions since the implementation of Basel III regulatory framework.

Figure 10: Island Wide Shadow Space

Approximately 3.8 million sq ft of office spaces in the CBD is expected to come on stream by 2016. The 1.1 million sq ft of excess shadow space and thinning number of leasing prospects available may suggest an oversupply in the office sector over the next 2 years (Savills, 2015). The bulk of this supply stems from Marina One which will provide 1.8 million sq ft of office space when it is completed in 2016. On the bright side, there is currently no supply pipeline of office spaces in the Marina Bay area beyond 2016.

500,000

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2008 2009 2010 2011 2012 2013 2014 YTD 2015

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5. Office Market Analysis

Figure 11: Office Space Pipeline

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5.2 Demand

Figure 12: Summary of Recent Leasing Transactions

Financial institutions such as banks are the key driver in the take-up for office spaces. However, the banking sector has yet to make a complete recovery from the global financial crisis. This has resulted in the absence of fresh demand from banks for CBD office spaces. In addition, some financial institutions are observed to have curtailed on their office space usage. Notably, Standard Chartered Bank is planning to return 70,000 sq ft of its office spaces in Marina Bay Financial Centre Tower 1. This is equivalent to 3-storeys of office spaces. In contrast, smaller-space occupiers are observed to be offsetting tenant’s muted demand for large spaces in the New Downtown area. 21,000 sq ft of space in Asia Square 2 was recently taken up by a shipping company. In addition, Rakuten, Marubeni Singapore, Nordea Bank, South 32 (BHP) and Clarksons have leased a grand total of 104,000 sq ft. Smaller-space occupiers continue to provide some vitality for the leasing demand of office spaces in New Downtown. However, non-office developments such as business parks and high-tech industrial spaces have posed a threat towards offices located in the CBD. These non-office developments have enticed tenants with their attractive rents. This can be demonstrated by Google’s relocation from Asia Square in New Downtown to Maple Business City II starting next year. This will release 100,000 sq ft worth of office spaces in Asia Square Tower 1 (Colliers, 2015). Furthermore, cost-conscious firms have increasingly used decentralisation strategy to alleviate their operating expenses in a period of uncertain economic conditions. A recent example would be Diamler Group and Beca, an automobile firm and a mechanical engineering service firm, decentralising from Downtown area to Westgate Tower in the suburban micro-market.


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5.3 Vacancy & Rental Rate

Figure 13: Net Demand, Net Supply and Vacancy rate of CBD Grade A offices, 2006-1H/2015

Although the vacancy rate in the CBD area remains low at 4.3% in 1H 2015, the massive supply pipeline of office spaces accompanied by falling demand will lead to an upward spiral of vacancy rate in the next few quarters.

Micro-Market

Average Monthly Gross Rents ($ per sq ft/ Month)

Quarter-on-Quarter Change (%)

2Q 2015 1Q 2015 2Q 2015 1Q 2015

Premium

Raffles Place/New Downtown 11.93 11.93 0 0

Grade A

Raffles Place/New Downtown 10.43 10.41 0.2 1.6

Shenton Way/Tanjong Pagar 9.00 9.00 0 0

Marina/City Hall 10.04 9.97 0.7 2.2 Figure 14: Office Rents

As of Q2 2015, the average monthly gross rent of Premium Grade office spaces in the Raffles Place/ New Downtown micro-market has remained consistent for three consecutive quarters (Colliers, 2015). Rent for office spaces in the CBD is expected to be strained by issues such as poor economic performance, a cautious hiring market and changing preference of office spaces. It is estimated to contract by 5% to 10% in 2H 2015 and decrease by 4% to 6% year-on-year from Q4 2014 to Q4 2015 (Knightfrank, 2015).

5.4 Capital Value

Investors are becoming more vigilant in Q2 2015 with slowing rental growth, bullish prices, rising interest rate and increasing competition for strata-titled office spaces (Colliers, 2015). The implementation of Total Debt Servicing Ratio (TDSR) in June 2013 has also chipped away investors’ appetite as property loans become more difficult to obtain. Nevertheless, institutional players, optimistic private-equity investors, high net-worth individuals and family offices have continued to provide support for prices of office spaces as investment properties. In Q2 2015, a pick up on transactional activities is detected. This is most probably a result of



15

supply-led demand from new strata-titled units launches such as GSH Plaza in the Raffles Place/New Downtown micro-market. 30 out of the 52 caveats lodged during the first two months of Q2 2015 are new units. There is an increase of 2 caveats lodged for new strata-titled office space in Q2 2015 as compared to those in Q1 2015. The table below summarises the list of transactions that have been carried out recently. Property Price PSF NLA

One Raffles Place $1,290,000,000 $2,382 PWC building $201,900,000 $1,892

158 Cecil Street $240,000,000 $2,100

GSH Plaza $31,600,000 $3,055

Prudential Tower $14,100,000 $2,802 Figure 15: Sale of Office Space, Q2/2015

A notable example was seen in June 2015 when OUE Commercial REIT entered into a conditional sales and purchase agreement with OUE Limited. OUE Commercial REIT has attained an effective interest of over 60% in One Raffles Place through the acquisition of

majority stakes in OUB Centre Limited, which holds the legal title of the property. These recent investment sales have caused the average capital value of Premium Grade and Grade A office space in the Raffles Place/New Downtown micro-market to stay flat at $2,821 psf and $2,532 psf respectively as of June 2015. There was a rise in average capital value of about 1.3% in 1H 2015. The outlook for office sales after that period is expected to remain tepid in the short to medium-term due to poor market sentiments. One can expect that there will be moderate price correction in the near future.

5.5 Competitive Analysis A competitive analysis for top prime office developments within the vicinity of Central Boulevard is conducted.

5.5.1 Keppel Land’s Existing Developments Keppel Land possesses ownership interests of 3 prime office spaces in close proximity to Central Boulevard. These include Marina Bay Financial Centre (MBFC), One Raffles Quay (ORQ) and Ocean Financial Centre. They have a total net lettable area of 2,920,000 sq ft, 1,300,000 sq ft and 885,500 sq ft respectively. Further details of these developments are shown below.

Figure 16: Capital Value of Office Space


16

Project MBFC ORQ Ocean Financial Centre

Ownership Interest RQAM RQAM Keppel Land

Floor Plate 20,000 - 45,000 sf 18,000 - 30,000 sf 20,000 - 25,000 sf

Committed Occupancy 98.7% 100.0% 100.0%

Effective Rent $12.50+ psf $12.00+ psf $10.50 - $13.00+ psf Figure 17: Keppel Land's Project Analysis

As shown in the table above, Keppel Land has successfully maintained healthy occupancy rates for all of its developments in the area. The effective rents it fetched are well above $11.93 - the average of Premium Grade A office rental in New Downtown area.

5.5.2 Other Competitors’ Developments There are 3 other prime office developments within the vicinity of Central Boulevard. These include CapitaGreen, Asia Square Tower 1 and Asia Square Tower 2. They have a total net lettable area of 702,900 sq ft, 1,200,000 sq ft and 780,000 sq ft respectively. The table below shows further information on these developments.

Project CapitaGreen Asia Square Tower 1 Asia Square Tower 2

Ownership Interest CapitaLand BlackRock Property BlackRock Property

Floor Plate 22,000 sf 35,000 sf 31,000 sf

Committed Occupancy 83.0% 96.3% 95.6%

Effective Rent $13.00+ psf $11.00 - 12.00+ psf $11.00 - $12.00+ psf Figure 18: Competitive Analysis

CapitaGreen is seen to have a relatively lower occupancy rate than Asia Square Tower 1 and 2. This is most probably due to it being recently launched on December 2014. CapitaGreen is expected to reach 100% occupancy rate by end of 2015 (Singapore Business Review, 2015). Furthermore, Asia Square Tower 1 has recently been listed for sale by BlackRock Property. The asset manager is expecting for a price of at least $3 billion ($3,200 psf, well above the average capital value for premium grade office of $2,821 psf (Colliers International Singapore Research, 2015). This offer has so far aroused the interests of many bidders including Keppel Land, CapitaLand and Norway’s Sovereign Wealth Fund.


CapitaGreen Asia Square

17

6.1 Supply

6.1.1 Government Policy The Urban Redevelopment Authority (URA) had introduced a new policy in July 2014 that tightens the approval of new development applications for hotel, boarding house and backpackers’ hostel uses. It will only be subsequently reviewed in 2016. This policy indicates that all proposals for new hotels, boarding houses and backpackers’ hostels, including any change to such uses of sites that are not zoned or permitted for hotel use will generally not be allowed in areas such as Outram, Rochor, Downtown Core, Singapore River and areas outside the Central Area. As such, the supply of potential hotel space will be significantly limited in Singapore.

6.1.2 Supply Pipeline of Luxury Hotel Rooms CBRE Hotels estimated that there are approximately 45,850 hotel rooms in Singapore as of 2013. An estimated number of 13,670 new hotel rooms will be completed from 2013 to 2017. This translates to a growth rate of 29.8% over this four-year period. On the other hand, luxury hotel rooms are expected to grow at 19.3% over the same period. With a lower expected growth rate in the luxury hotel market, there may be an inadequate supply of luxury hotel rooms coming onto the market to meet the growing demand.

Figure 19: Luxury/ Upscale Hotels in Central Area

6.2 Demand

6.2.1 BTMICE Singapore has seen steady growth in the Business Travel and Meetings, Incentive Travel, Conventions and Exhibitions (BTMICE) industry as the number of business visitors increased by 3% to reach 3.5 million in 2013. These visitors spent an estimated S$5.5 billion during their

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6. Hotel Market Analysis


18

visit. According to the International Congress and Convention Association (ICCA), Singapore ranked 6th among the top convention cities in the world in 2013, hosting a record number of 175 ICCA events. As Singapore continues to push for more first-in-Asia and first-in-Singapore events, the demand for BTMICE space and corporate accommodations are expected to increase steadily. Hence, providing BTMICE space such as meeting rooms and ballrooms in the proposed hotel component will be crucial to meet this growing demand.

6.2.2 Annual Visitor Arrival As of June 2015, Singapore has welcomed approximately 7.26 million international visitors. Although visitors from the ASEAN region have decreased in 1H 2015, a growth was registered in June 2015 due to the support from other Asian markets. Consequently, year-end visitor arrival is expected to reach 15.3 million, representing an estimated year on year growth of 1.36%. The annual visitor arrival is projected to increase over the next few years (CBRE, 2015). Thus, a steady demand for hotel rooms can be expected for hoteliers. Previously, a decrease of visitor arrival was observed in 2014. This is probably due to the recent aviation accidents which impacted short-term visitor arrivals. However, visitor arrivals are expected to recover and growth can be expected in the long term.

6.3 Occupancy Rate, ADR and RevPAR The occupancy rates for luxury hotels in Singapore during the year 2014 was 87.5%, while the Average Daily Rate (ADR) for luxury hotels increased by 5.9% to reach S$461.80. This translates to a Revenue per Available Room (RevPAR) of S$404.30, which is a 5.3% increased from 2013. However in 1H 2015, occupancy rates for luxury hotels hovered around 84.3% while ADR decreased by 3% to reach S$444.30. The declines in both occupancy rates and ADR have led to the subsequent decline of 7.2% in RevPAR, reaching S$374.60.

Figure 20: International Visitor Arrivals

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6.4 Capital Value

There was only one major hotel sale in 1H 2015 so far. This is unlike the high number of transactions seen over the past few years. The decrease in volume is due to the lack of an investible market in CBD and Orchard road coupled with high asking prices (CBRE, 2015).

Figure 22: Hotel Investment Sales

6.5 Competitive Analysis

Project Marina Bay Sands Westin

Ownership Interest Las Vegas Sands Daisho Group Rooms 2561 305 Committed Occupancy 99.0% Undisclosed

Figure 23: Competitive Analysis

The Marina Bay locale currently has 2 existing hotels. These include the 2,561-room Marina Bay Sands Singapore and the 305-rooms The Westin Singapore. According to the 2014 Las Vegas Sands annual report, Marina Bay Sands had been operating at 99% occupancy rate and

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commanded an ADR of US$431 (S$538). This shows the huge demand for luxury hotel rooms in the Marina Bay district. On the other end, The Westin Singapore currently commands an approximate ADR of $390 while occupancy rate remains undisclosed. The Westin Singapore reflected positive signs in the hotel investment market when Daisho Group acquired the hotel in December 2013 at a price of $468 million. This translated to $1.5 million per room, one of the highest hotel transaction prices. With Marina Bay Sands requesting the government to release an adjacent land site for their hotel expansion plans and Daisho Group’s positive outlook for the hotel market through their high acquisition of the Westin, it can be seen that the long-term prospects of hotels in Marina Bay is expected to exceed the current short-term declines in the hotel sector.

21

7.1 Supply The supply of Singapore retail space has steadily increased over the years. Island-wide private retail stock has grown by 4.9% year-on-year to 47.2 million sq ft from 2014 (Mapletree Commercial Trust, 2015). As seen in the pie chart below, the Downtown Core area accounts for 14% of these spaces, relatively less than the other areas.

The table above reveals the retail developments that were recently completed. The retail space launched in the Core Central Region (CCR) from 2014 to 1H 2015 amounted to a total of 939,200 sq ft. In addition, a total of 310,000 sq ft and 628,400 sq ft are launched in the Rest of Central Region (RCR) and Outside Central Region (OCR) respectively. There is also an increasing trend of existing shopping malls undergoing asset enhancement initiatives (AEI) to stay relevant and competitive. Suntec City and Tampines Mall have recently completed their AEI works, providing competitive supply in the retail market. Moreover, it has been announced that CapitaLand Mall Trust will be performing interior upgrading works

City Fringe, 26.70%

Outside Central Region, 23.40%Rest of Central

Region, 19.50%

Orchard Area, 16.30%

Downtown Core area, 14.00%

Project Sub Market Sq Ft (Gross)

2014 Orchard Gateway CCR 166,400 Kallang Wave CCR 441,500 One KM RCR 215,000 Paya Lebar Square RCR 95,000 Seletar Mall OCR 188,000 Big Box OCR 329,000 2015 Capitol Piazza CCR 156,100 Claymore Connect CCR 50,200 Suntec City AEI CCR 125,000 Tampines Mall AEI OCR 30,000 321 Clementi OCR 81,400

Figure 24: Retail space launched in various sectors

7. Retail Market Analysis

22

for Plaza Singapura in Q3 2015. This enhancement works are expected to be completed in Q4 2016.

7.1.1 Supply Pipeline of Retail Spaces

Figure 25: Pipeline of Retail Space 2015 - 2019

The aggregate supply pipeline of retail space available island-wide from 2015 to 2018 is around 4.2 million sq ft. Approximately 22.3% of these supply pipeline will be situated in the Downtown Core area. The table below lists developments comprising of retail space to be launched within the next 4 years. Expected Launch Date Project

2015 South Beach Avenue National Art Gallery

Marina Square Extension

Eon Shenton

2016 Tanjong Pagar Centre Marina One Duo Galleria

2017 Nil

2018 City Gate Figure 26: Expected Date of Launch for Retail Projects

23


7.2 Demand

7.2.1 Visitor Arrival Tenants’ demand for retail space in the Downtown area is highly dependent on tourist traffic. Singapore’s visitor arrivals for the first 4 months of 2015 fell by 5.4%, recording approximately 4.9 million visitors. A fall in shopper traffic and pedestrian footfall for Central Region malls is observed in Q2 2015 (Savills, 2015).

7.2.2 Leasing Market

Figure 27: Notable New Store Openings in Q2 2015

Several new-to-market F&Bs are discovered to be making their debut in the Central Region retail market. Capitol Piazza has attracted 2 new-to-market tenants, Four Seasons and Angelina. Four Seasons which specialises in London roast duck has opened up a 150-seat restaurant. Similarly, Angelina has set up a 60-seat Parisian tearoom. In the Orchard area, Scotts Square has also incorporated a new F&B concept involving the 45-seat Hong Kong-style London Fat Duck. Marina Bay Sands recently let out its retail space to a new-to-market Bread Street Kitchen totalling 149 seats.

7.2.2.1 Retail Sales Performance There is a decline of 2.7% year-on-year for retail sales in Central area as consumer spending stayed in tentative territory (Colliers, 2015). Discretionary consumer categories such as goods and books, furniture and household equipment as well as recreational goods reported a drop of 2.7%, 5.0% and 5.7% respectively in the same period.

Retailers Location Category Nature of Brand

Angelina Capitol Piazza Food & Beverage New-to-Market Four Seasons Capitol Piazza Food & Beverage New-to-Market London Fat Duck Scotts Square Food & Beverage New-to-Market Bread Street Kitchen Marina Bay Sands Food & Beverage New-to-Market


24

Figure 28: Retail Sales Index

7.3 Vacancy

Overall vacancy levels for retail space have been spiraling upwards due to immense pressure from falling tourist arrivals and upcoming competitive retail supply. As shown from the above figure, the vacancy rate in the Downtown Core region is the highest compared to Orchard and Outside Central Region. The Downtown Core vacancy rate rose by around 6% in just half a year. It is expected to reach a range of 16% to 19% by the end of 2015. (Knightfrank, 2015).

7.4 Conclusion The proposed mixed-use development will not incorporate any retail space. This is due to the poor market sentiments for retail space in the central area. In addition, there is poor pedestrian flow and traffic footfalls during after-work hours and weekends. The main contributors for demand for retail space in the Downtown Core comes mainly from food and beverage, which Keppel Land have adequately provided in Marina Bay Link Mall. Furthermore, an expected 140,000 sq ft of retail space is expected to come on stream, upon the completion of The Heart at Marina One. Based on the Huff retail gravity model, a substantial amount of retail space must be allocated in order to compete against a shopping mall of such size. Therefore, we recommend to not develop any retail space. Instead, it is advisable to channel the gross floor area into more profitable land uses for this development.

Figure 29: Retail Vacancy Rate, 2011 - Q2/2015


25

8.1 Launch and Primary Sales Volume

Figure 30: Primary Residential Property Launch and Sales Volume

Developers launched 2,099 new private residential units in Q2 2015, a surge of 76.5% from the 1,189 units launched in the previous quarter. The aggregate of 3,288 units launched in 1H 2015 shows an expansion of 13.9% from 2H 2014. The total sales volume for private residential properties in the primary market as of Q2 2015 has climbed 61.4% quarterly from 1,311 to 2,116 units. This new sales comprise of 1,999 uncompleted units as well as 117 completed units. The sales volume in 1H 2015 amounted to an increase of 17.9% from 2H 2014. The soar in transaction volumes is mainly propelled by the launches of new projects in Outside Central Region (OCR), such as North Park Residences and Botanique at Bartley. These developments had high take-up rates despite weak property market condition. North Park Residences successfully transacted 561 of its 600 units launched. Similarly, Botanique at Bartley sold 403 of its 500 units launched. Furthermore, new sales of completed units in the Core Central Region (CCR) have also received greater interests among buyers. A total of 67 completed units were sold in Q2 2015, the highest level seen since Q1 2012.

8.2 Upcoming Supply and Unsold Stock As of Q2 2015, the total supply in the pipeline available for private residential units is 61,237

units, a 10.2% shrink from the previous quarter.

Property Type As at Q1 2015 As at Q2 2015 Absolute Change % Change

Private Residential Units 68,201 61,237 -6,964 -10.20% Figure 31: Supply in the Pipeline

8. Private Residential Market Analysis

26

URA revealed that 11,618 and 21,043 private residential units will be completed by 2H 2015 and 2016 respectively. The supply for private residential units will also continue to diminish after 2016.

The Government resumes to reduce the supply of residential sites via the Government Land Sales (GLS) Programme due to the concern going over unsold stock. There are only 4 Confirmed List and 11 Reserved List sites with a residential use component released for sale in 2H 2015. In comparison, 6 Confirmed List and 11 Reserved List sites with a residential use component were released in 1H 2015. All the private residential sites released on 2015 Confirmed List are situated in OCR and RCR. This signifies the scarcity of supply for residential sites in CCR. The pipeline of unsold stock available island-wide in Q2 2015 is 26,905 units, a decline of 5.4% from Q2 2014 and 20.7% from Q2 2013. The CCR market has shown a more significant drop of 15.1% from Q2 2014 and 24.3% from Q2 2013. The unsold stock in CCR stands at 8,211 units for Q2 2015. It can be expected to shrink further as the market resume to absorb the remaining stock, complimented by the tapering of residential sites for tender.

8.3 Prices The graph below revealed that the property index for non-landed private properties in Singapore has dipped by 0.9% from 145.5 to 144.2 in the latest quarter. The price index has encountered its seventh consecutive quarterly drop, resulting in a plunge of 6.7% from 154.6 to 144.2 since Q3 2013.

Figure 33: Singapore Non-Landed Residential Property Price Index

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Price declines were observed across all segments of the private residential property market

- CCR, RCR and OCR. In the CCR, prices of non-landed properties in Q2 2015 fell further by

0.6% from the 0.4% drop in Q1 2015. Prices in the RCR also dip by 0.6% although less

notable than the 1.7% drop in the previous quarter. Likewise, the prices in OCR took a

plunge of 1.1% this quarter, a constant rate as the previous quarter. URA statistics showed

that the prices in CCR are the least volatile among other markets in general. Consequently,

potential investors for the CCR residential market may gain a higher market confidence as

they are conventionally more risk-averse (Savills, 2015).

Figure 34: Non-Landed Residential Property Price Index

8.3.1 High-End Market

The prices of high-end properties have continued to fall by 5.4% to an average of $2,024 per sq ft from Q2 2014 to Q2 2015 (Knight Frank Residential Sales Research, 2015). In comparison to the plunge of 9.6% from Q1 2014 to Q1 2015, the rate of decline has improved significantly. This generates a better prospect for developers considering high-end residential development.

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8.4 Market Outlook The private residential market as of Q2 2015 were being surrounded by a few major events. The market sentiments are currently affected by the first probable increase in interest rate decision by US Federal Reserve since June 2006. The fluctuations in the stock market and Asian currencies have resulted in uncertainties on Asia’s economic prospects, including Singapore. In addition, the cooling measures implemented by the government also continue to hamper the private residential property market. Short-term and mid-term foreign investors remain modest on private residential property investments due to their low confidence that property price growth will exceed the taxation costs involved. The TDSR framework has also restricted the flow of liquidity into private residential market among Singaporeans. Consequently, the launching of new projects may stay suppressed as developers remain prudent on the outlook of the private residential market for 2H 2015. However, this may also create a golden opportunity for developers. Developers can enter the market and utilise the relatively lower competition during this period of time while yielding sufficient profit depending on buyers’ affordability. The launches of private residential properties with attractive attributes and pricing strategies have been well received by the market. Strategically located and integrated projects were still realising healthy absorption rate despite the weak market condition. According to Mr Ong Teck Hui as the National Director of Research & Consultancy at JLL, Northpark Residences was definitely a market mover that attracted much interest being a unique development integrating retail, residential and transport connectivity. Amidst the challenging market, developers offering a unique product will have the competitive advantage in capturing buyers. Nonetheless, normality has not been observed in the private residential market. Although sales volume has been increasing this quarter, the private residential property price still encountered a negative growth. Buyer’s affordability seem to have played a critical role in the transaction volumes of projects. Projects with larger units are faced with a lower take-up rate due to their higher price quantum, especially those in the CCR. These large units will eventually add to the unsold stock. This is evident in the case of Marina Bay Suites which focused on developing large residential units consisting of 3 bedrooms, 4 bedrooms and penthouses only. Based on the current data gathered from Realis, 21 units remained unsold 6 years after it was first launched in 2009. Among these unsold units, 66.7% are 4 bedroom units. In addition, only 1 out of 3 penthouses were transacted. Aside from the losses of not being able to clear off their inventories, the consortium developers for Marina Bay Suites should also bear with hefty Qualifying Certificate (QC) Charges over their unsold units. Taking into consideration the prevalent weak property market condition, smaller residential units will most likely be in favour to the market as compared to larger residential units.



8. Residential Market Analysis

29

Figure 35: Residential Property Cycle

Despite the poor market sentiments in the property market, the high-end property segment may have a positive outlook in the near future. The luxury residential market is expected to find a bottom soon as it has been affected sufficiently by cooling measures imposed (DBS, 2015). The investments made by The Blackstone Group, a highly-established real estate private equity fund manager, signals the potential recovery of prices in the luxury market. The Blackstone Group carried out a bulk purchase of 34 units at 21 Anderson Royal Oak Residence as well as 18 units at Paterson Suites in the end of 2014. According to OCBC Singapore Mid-Year 2015 Credit Outlook, this optimistic market sentiments will not run through the mass market segment. Ms Alice Tan, the head of research for Knight Frank has mentioned that the price difference between high-tier and mid-tier residential properties have begin to narrow. This results in increasing pressure imposed by Real Estate Developers’ Association of Singapore (REDAS) on the government to review the implementation of cooling measures in luxury residential market. According to Ms Alice Tan, high-end residential prices will increase within the range of 5% to 8% over the next 3 years.

8. Residential Market Analysis

30

8.5 Competitive Analysis A competitive analysis for residential developments within the boundary of Singapore’s Postal District 1 in Marina Bay is conducted. Currently, there are 2 developments with unlaunched residential units in the area, Marina One Residences and V on Shenton.

Project Marina One Residences V on Shenton

Ownership Interest M+S Pte Ltd UIC

Number of Units 1042 510

Absorption Rate 88.3% 94.8% Figure 36: Competitive Analysis

Marina One Residences is developed by M+S Pte Ltd, a joint venture by Khazanah Nasional Berhad and Temasek Holdings. The mixed-use development incorporates 2 residential towers amounting to 1042 units. It offers 1 to 4 bedroom units as well as penthouses. 401 units at its first residential block were launched in Q4 2014. The absorption rate for the released units has reached 88.3%, leaving only 47 unsold units currently. Marina One Residences has a stockpile of 641 units waiting to be launched. According to Mr Tan Sri Azman Yahya as Chairman of M+S Pte Ltd, they will restrain the release of 521 units at the second residential block until 2017 when the project has attained its Temporary Occupation Permit (TOP). M+S Pte Ltd receives an exemption on Qualifying Certificate (QC) rule. Consequently, it is not obligated to clear all their units within 2 years of completion. According to Ms Kemmy Tan as Chief Operating Officer of M+S Pte Ltd, the release will also be accompanied by an upward revision on the prices of new units against those launched earlier. The average unit prices sold at the first residential block since the initial launching is approximately $2,250 psf. M+S Pte Ltd is optimistic towards being able to discharge all of their units at the first residential block by 2017. In Q2 2015, the transacted price of Marina One Residences units span from $2,200 to $2,800 psf with an approximate average of $2,420 psf.


Marina One V on Shenton

31

V on Shenton is developed by United Industrial Corporation Ltd (UIC). The integrated development includes a residential tower with a total of 510 units. It supplies 1 to 3 bedroom units and penthouses. It started launching 329 units in Q3 2012. Subsequent discharge of units are then carried out in Q4 2012, Q1 2013 and Q2 2015. The aggregate of units launched as of Q2 2015 tantamounts to 400 units. The developer has attained an absorption rate of 94.8% with 21 launched but unsold units. V on Shenton still has a

remaining of 110 unlaunched units which can be released in the near future following the previous launches. In Q2 2015, the transacted price of V on Shenton units concentrated at a range of $1,900 to $2,600 psf with an average approaching $2,240 psf.

Figure 37: Location of Competitors

32


s

PicturesqueBay Views

Tranquil Garden Sanctuary

Exquisitelylandscaped Sky

Terrace

Azure InfinityPool

DEVELOPMENT PROPOSAL

Summary

The proposed development will comprise of a 4-storey podium and a 50-storey tower, consisting of 66% office, 18% residential and 16% hotel.

9.1 Proposed Development sss=s

9.1.1 Design Philosophy The design philosophy is principally founded on four core lines that are drawn vertically against the skyline of Marina Bay. These four lines are then diagonally truncated to create a dramatic building crown that will be landscaped into a luscious rooftop sky garden. The glass curtain façade will also be articulated with sky terraces to help break down the massing and scale of the building.

9.1.2 Design and Architect Management We would like to recommend commissioning Aedas to create the development design after careful consideration and research. Aedas is an international architecture practice that specialises in high rise, high density and mixed-used developments in developed as well as emerging cities. Aedas’ design philosophy revolves around designing with a deep sense of understanding to the social and cultural context of the city, resulting in a brilliance of contemporary and vernacular architecture. Consequently, we feel that Aedas’ strengths and capabilities are essential to the materialisation of our proposed development. We would also like to suggest appointing Andrew Bromberg from Aedas to be the lead design architect of this development. Andrew has significant experience in designing mixed-use developments comprising of office, hotel and residential components. He has overseen the completion of such developments in China and has won numerous design competitions for such briefs in the United Arab Emirates. Some of his masterpieces include The Star Vista and The Sandcrawler.

9.1.3 Landscape Architect We suggest engaging Helen Smith-Yeo from Sitectonix to provide landscaping expertise for the urban pocket park, sky terraces as well as the rooftop sky garden. Helen is one of the principal architects in the firm and holds a Masters in Landscape Architecture from Harvard University. Furthermore, Helen and her practice has won numerous awards such as the Singapore Landscape Architecture Awards. She has collaborated with many reputable developers such as CapitaLand, Keppel Land and City Developments Limited. Some of her significant projects include One George Street, Vivocity and Kent Vale.

9. Development Proposal

Figure 38: Proposed Development

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9.2 Site Plan

The proposed development will comprise of a 4-storey podium and a 50-storey tower, consisting of office, residential and hotel components. The development will be constructed on the lower half of the land parcel as the upper half has been designated as an open green space. The tower will have a South-East orientation. This is to capture unblocked views of the Marina Reservoir and panoramic ocean views while mitigating as much afternoon sun as possible.

9.2.1 Open Green Space This open green space will be landscaped into an urban pocket park that provides attractive spaces for pedestrians and building users to rest and interact.

9.2.2 Vehicular & Pedestrian Access

In terms of pedestrian and vehicular accessibility, the development will have an elegant drop-off lobby as well as an underground car park that is accessible via Commerce Street. There will be a sheltered pedestrian path that stretches along Central Boulevard and runs parallel to Raffles Quay. A 2nd-storey pedestrian link bridge will also be created to provide connections with One Raffles Quay and Asia Square Tower 1. The development will also have a direct underground link to the Downtown Line MRT station.


34

Figure 39: Development Site Plan

9.3 Product Development

We have decided on the displayed level of space allocation after undertaking a meticulous real estate market analysis. The proposed mix of Office, Residential and Hotel space is intended to provide diversified revenue streams and a reduction of unsystematic risk. Due to the poor market sentiments in all real estate sectors, a split between various land use typologies will help the development to attain a healthier absorption and growth rate.

Figure 40: Typology of Proposed Development

9.3.1 Office As Marina Bay is poised to become a leading global financial hub, the proposed office component is developed to provide modern and efficient office space mainly for tenants from the financial and legal industry. In addition, the office space will also be designed to appeal to e-commerce and pharmaceutical industries which are growing in size and influence. Targeting tenants from a diversified range of industries will assist in improving the absorption rate of office space.

The development will feature a premium grade A office space that is both large and column free. This makes spatial planning of offices more convenient for tenants. The development will have an average floor plate size of 35,000 sq ft in the tower block dedicated for office space. This is in addition to the approximately 60,000 sq ft of office space per level allocated on the 3rd and 4th-storey of the podium block. The proposed office will also offer 150mm of raised flooring and a raised floor-to-ceiling height of 3m, catering to specialised operations that may require such specifications.


Column Free Space 150mm Raised Flooring

Office, 66%

Residential, 18%

Hotel, 16%

35

In addition, there will be a sky terrace garden and mist pool that is landscaped with lush vegetation on the 5th floor yielding approximately 30,000 sq ft of green space. These amenities provided for the tenants will serve as a differentiating factor from the other office developments such as Asia Square and One Raffles Quay.

9.3.2 Hotel The proposed hotel component is envisioned to be positioned as a 5-star contemporary luxury hotel since this is reflective of the genius loci of Marina Bay, a modern and affluent district for the upper echelon of society. As branding is pivotal in the positioning of hotels, we have selected the Mandarin Oriental Hotel Group to manage the proposed hotel component under the Mandarin Oriental brand. A key reason involves Mandarin Oriental Hotel Group being a member of the Jardine Matheson Group in which Hongkong Land (our joint venture partner, described later in the report) is a fellow member as well. As a result, Keppel Land is able to negotiate for more favourable terms in the management contract and unlock new levels of synergies among its joint venture partner. Mandarin Oriental is a 5-star luxury international hotel group that operates 46 Mandarin Oriental hotels with 11,000 rooms in 25 countries. Mandarin Oriental has more than 50 years of experience in the hospitality industry and is widely regarded as one of the world’s best luxury hotels chains famed for their legendary Asian hospitality and service. The Mandarin Oriental Hotel will feature 250 contemporary guestrooms, 20 well-appointed junior suites, 30 luxurious executive suites and 2 opulent presidential suites. Each room will have floor-to-ceiling windows that provide scenic views of Marina Bay or stunning views of the Singapore city skyline. The interior design of the rooms will feature Mandarin Oriental’s signature gold, cream and grey tones as well as elegant furnishings to further accentuate the lavishness of the property.


Sky Garden Mist Pool

36

There will be a lobby bar and lounge as well as 2 specialty restaurants on the 1st-storey podium along Central Boulevard to provide guests with a delicate selection of dining options. These food and beverage spaces also help to fulfil the activity generating uses requirement on the ground floor. The 2nd-storey hotel podium will comprise of a grand ballroom, 8 meeting rooms as well as an all-day dining restaurant that offers a smorgasbord of cuisines for guests and patrons. The remaining amenities such as The Mandarin Oriental club lounge, spa, fitness centre and infinity pool will be located on the sky terrace level to provide users with a unique relaxation experience.

9.3.3 Residential The proposed residential development distinguishes itself from the other Marina Bay condominiums by fusing the ideals of luxury and exclusivity together. The residences will be positioned as a boutique development that offers limited number of units to attract affluent consumers who value exclusivity and privacy. A detailed research on the residential market has shown that the sales of larger units tend to move slower. As such, the project will only be offering relatively smaller units with an option of one bedroom, one bedroom with loft, two bedrooms or two bedrooms with loft units, at an average size of 725 sq ft. Lofts are incorporated in several units to resolve the issue of reduced floor area. High ceiling in the lofts provide a spacious and luxurious ambience, which may be preferred by many foreigners used to living in larger spaces. The development will have a total of 360 residential units spread over 15 storeys, 24 units on each level. Despite the multitude of residential units per floor, the residences will retain their exclusivity through the use of private lift lobbies integrated into each unit. These private lifts provide a safe and secure environment for the residents to transit, circumventing any concerns of high human traffic flow. Private lift lobbies have always been a highly desired unique feature in luxury homes. They are able to bestow exclusivity and privacy upon residents with only 2 sqm of additional space.


Opulent Presidential Suites Grand Ballroom Meeting Rooms

37

Private Lift Infinity Pool Sky Garden

Similar to other high-end residential developments, the proposed development offers comprehensive recreational activities catering to residents of different age groups. The proposed residence will incorporate a wide array of facilities such as an infinity pool and a gym at the rooftop sky garden. Residents will get to enjoy the extensive skyrise greenery as well as a spectacular view from the top floor of the building while using the facilities. In addition, the residents will bear the exclusive brand of The Residences at Mandarin Oriental to tap on the legendary service of the renowned hotel operator. This aims to create an exceptional lifestyle. Residents will get to enjoy the best of both worlds - the tranquility of a private home accompanied by the exquisite amenities and service of Mandarin Oriental Hotel. For instance, services offered only to hotel guests such as concierge, valet, housekeeping and maintenance are now awaiting the residents. This unique feature serves as an additional selling point.

38


FINANCIAL ANALYSIS

Summary LTV: 80% Land Bidding: $1,990,000,000 NPV: $5,460,000 IRR: 16.02%

10.1 Investment Timeline

Figure 41: Investment Timeline

The awarding of the tender is expected to be done by the end of March 2016. Assuming Keppel Land is successful in securing the site, it would have to pay an upfront lump sum tender price during this period. As shown in the above timeline, the construction of the project will begin several months after the land is acquired in March 2016. As a typical mixed-use development project will take around 48 months to complete, the office and hotel operations is expected to commence only by March 2020. The office and hotel developments will then receive 6 years of net operating income, before being divested away in March 2026. This is based on a 10-year exit strategy (discussed further in the Joint Venture section of the report) for the proposed office and hotel spaces so that Keppel Land can realise the capital gains from the expected appreciation of the development. The sale of residential units will be divided into 2 launch phases to ensure that there is no sudden injection of supply, hence increasing its absorption rate. The residential property is expected to receive its Certificate of Statutory Completion (CSC) by March 2021.

10.2 Debt Structure & Interest Rate

It is expected that Keppel Land will raise 35% of the total debt through the issuance of short-term unsecured notes at a fixed rate of 3.09% under the Keppel Land Multicurrency Medium Term Note Program. This is based on the historical interest rates of 2.67% to 3.51% that Keppel Land had successfully managed to secure during previous issuances. The remaining 65% debt will be raised through unsecured bank loan borrowings denominated in Singapore dollars at an interest rate of 1.81%. The weighted average cost of borrowing from these debt instruments will be 2.2367%. This weighted average cost of borrowing is subsequently

10. Financial Analysis

Bank Loans,

65%

Medium Term

Notes, 35%

Figure 42: Debt Structure

39

used as a benchmark to determine the assumptions for land loan and construction loan interest rates. Estimated interest rates of 2.10% and 2.60% are used for land loan and construction loan respectively. The interest rate for land loan is expected to be lower compared to construction loan considering that land can be used as a collateral.

10.3 DCF Model & Monte Carlo Simulation

In order to determine the bid price and financial feasibility of the project, an investment analysis of the site using a discounted cash flow (DCF) model was conducted. The DCF analysis for this project is illustrated in Appendix II, III, IV and V. To create a more rigorous analysis, a Monte Carlo Simulation was run on the standard DCF model to establish the worst and best scenarios. This ensures that the whole spectrum of possible outcomes have been duly considered. This process helps developers validate or correct any preconceived notion that they may have previously hypothesised with regards to how each critical input variable may impact the analysis. The assumptions for the DCF model and Monte Carlo Simulation annexed in Appendix I and VI are determined by the market analysis and historical data extracted from REALIS for each real estate sector. The correlations between the variables required for the Monte Carlo Simulation are shown in the figure below. These correlations are based on observed historical values that have been adjusted according to their estimated behavior and interaction in the future.

Office Rent Office Vacancy Hotel ADR Hotel Vacancy

Office Rent 1 -0.60 0 0 Office Vacancy -0.60 1 0 0 Hotel ADR 0 0 1 -0.23 Hotel Vacancy 0 0 -0.23 1

Figure 43: Correlations between Chosen Variables

10.3.1 Open Market Valuation (OMV)

The DCF model is run 100,000 times using the Monte Carlo Simulation, generating a statistical outcome as seen in the figure (left). The open market valuation, which is represented by the expected mean, for this site is $1,825,512,000.

10.3.2 Funding Structure & Land Bid

Developers might be interested to use debt financing in exchange for being able to raise the tender price without undermining profit margins when undertaking a real estate development project. The following scenarios provide an analysis on the level of debt a developer should use to finance the site development. Similarly, 100,000 simulations of the DCF model was performed for the following scenarios through Monte Carlo Simulation. A list of probable outcomes (certainty) for return (IRR) and net present value (NPV) is generated under each scenarios.

Statistic Forecast values

Trials 100,000 Expected OMV 1,825,512,482 Standard Deviation (St. Dev) 157,586,155 Coeff. of Variation (COV) 0.0863 Minimum 1,242,844,390 Maximum 2,584,958,587




40

10.3.2.1 Scenario 1

Statistic Forecast values (IRR)

Trials 100,000 Expected Returns 14.07% Standard Deviation 1.35% COV 0.096 Minimum 7.49% Maximum 19.37%

Statistic Forecast values (NPV)

Trials 100,000 Expected NPV 12,254,996 St. Dev 120,982,812 Minimum -495,567,881 Maximum 598,313,493

For the first scenario, the developer would have to make an initial equity contribution of $821,300,000 in the event of a successful bid. Under this scenario assumptions, the risk-to-reward ratio (COV) amounts to 0.096, with an expected NPV and IRR of $12,255,000 and 14.07% respectively. There is a 90% probability that this investment will yield a return exceeding 12.34%. The total expected development cost will be approximately $2,748,556,000.

Land Bid: $1,910,000,000 Certainty

10% Returns

7.49% - 12.34% NPV

(-$495,568,000)-(-$140,800,000)

Certainty

40% Returns

12.34% - 14.12% NPV

(-$140,800,000)-$9,719,000

Certainty

40% Returns

14.12% - 15.81% NPV

$9,719,000 - $169,100,000

Certainty

10% Returns

15.81% - 19.37% NPV

$169,100,000 - $598,313,000

Development Cost

Initial Land Cost $764,000,000

Stamp Duty $57,300,000

Initial Equity Outlay $821,300,000

Construction Cost $206,911,511

GST on Construction $13,536,267

Professional Fees $17,403,772

Marketing Cost $43,278,361

Financing Cost $1,646,126,123

Total $2,748,556,035

Debt60%

Equity40%

Loan to Value: 60%


41

10.3.2.2 Scenario 2


Trials 100,000

Expected NPV 5,399,183

St. Dev 111,867,000

Minimum -455,819,158

Maximum 526,201,881

For the second scenario, the developer would have to make an initial equity contribution of $640,200,000 in the event of a successful bid. Under this scenario assumptions, the risk-to-reward ratio (COV) amounts to 0.099, with an expected NPV and IRR of $5,292,000 and 15.01% respectively. There is a 90% probability that this investment will yield a return exceeding 13.10%. The total expected development cost will be approximately $2,805,849,000.

Land Bid: $1,940,000,000 Certainty

10% Returns

7.78% - 13.10% NPV

(-$455,819,000)- (-$136,227,000)

Certainty

40% Returns

13.10% - 15.04% NPV

(-$136,227,000)- $3,182,000

Certainty

40% Returns

15.04% - 16.89% NPV

$3,182,000 - $150,374,000

Certainty

10% Returns

16.89% - 20.47% NPV

$150,374,000 - $526,202,000


Trials 100,000 Expected Returns 15.01% St. Dev 1.48%

COV 0.099 Minimum 7.78% Maximum 20.47%

Development Cost








Financing Cost $1,943,981,535

Total $2,805,848,559


Debt, 70%

Equity, 30%

Loan to Value: 70%

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10.3.2.3 Scenario 3


Trials 100,000 Expected Returns 16.02% St. Dev 1.64%

COV 0.102 Minimum 8.15% Maximum 22.40%


Trials 100,000 Expected NPV 5,460,017 St. Dev 103,411,303 Minimum -424,312,105 Maximum 451,434,196

For the third scenario, the developer would have to make an initial equity contribution of $457,700,000 in the event of a successful bid. Under this scenario assumptions, the risk-to-reward ratio (COV) amounts to 0.102, with an expected NPV and IRR of $5,460,000 and 16.02% respectively. There is a 90% probability that this investment will yield a return exceeding 13.91%. The total expected development cost will be approximately $2,886,361,000.

Land Bid: $1,990,000,000

Certainty

10% Returns

8.15% - 13.91% NPV

(-$424,312,000)- (-$125,949,000)

Certainty

40% Returns

13.91% - 16.06% NPV

(-$125,949,000)- $3,096,000

Certainty

40% Returns

16.06% - 18.10% NPV

$3,096,000 - $139,461,000

Certainty

10% Returns

18.10% - 22.40% NPV

$139,461,000 - $451,434,000

Development Cost








Financing Cost 2,266,457,101

Total $2,886,361,238

Debt80%

Equity20%

Loan to Value: 80%


43

10.4 Conclusion Taking into account the financial analysis conducted, we recommend Keppel Land to select Scenario 3 (80% LTV ratio) and submit a tender bid of $1,990,000,000. This would translate to an initial equity outlay of $457,700,000, an expected NPV of $5,460,000 and an expected return of 16.02%. By utilising higher loan-to-value ratio, the taxable income will be reduced due to higher debt service. Even though scenario 3 generates a relatively lower NPV compared to scenario 1 (60% LTV ratio), it allows Keppel Land to submit a higher tender bid price while maintaining a corresponding rate of return. This will therefore increase the probability of Keppel Land being able to secure the site.


44

JOINT VENTURE

Summary A joint venture between Cheung Kong as well as Hongkong Land should be considered to mitigate risk and to leverage on business partners’ expertise

11.1 Rationale for Joint Venture

This tender provides a strategic opportunity for Keppel Land to collaborate with its past business partners. It was announced that Hongkong Land has expressed interest in Central Boulevard. Chueng Kong Property Holdings has worked with Keppel Land on past projects and it would be strategic to rope them in on this project as this would improve business relations.

11.1.1 Healthy Financial Position

Cheung Kong Property Holdings and Hongkong Land are selected as Keppel Land’s joint venture partners due to their strong financial positions. According to the companies’ 2015 interim reports, Cheung Kong Property Holdings and Hong Kong Land have a debt-to-equity ratio of 11.0% and 9.3% respectively. This low debt-to-equity ratio signifies that both joint venture partners have sufficient financial strength to fund the investment. It is important to ensure that the joint venture partners are capable of adequately funding the project in order to ensure that the development will be completed on time.

11.1.2 Bankruptcy Risk Forming a joint venture consortium with Cheung Kong Property Holdings and Hongkong Land allows Keppel Land to reduce the risk of bankruptcy from undertaking project with a high total development cost. This risk is highest when the project’s total development cost is greater than the market capitalisation or shareholder’s equity of the company. A joint venture consortium reduces this risk as the total equity contributed towards the project will be reduced. A joint venture in this project on an unlevered basis, reduces the total development cost from $2,886,361,238 to $962,120,413. This significantly diminishes the repercussions on Keppel Land in the event this project fails.

11.1.3 Joint Expertise Forming a joint venture consortium allows Keppel Land to leverage on the various expertise of its joint venture partners. Both partners have undertaken an extensive number of office and residential development projects with Cheung Kong Property Holdings having additional experience in hospitality developments. A highly experienced joint venture consortium will also contribute to better decision-making and project execution. Furthermore, Keppel Land will be able to leverage on the strong corporate brand, credible reputation and connections of its partners to market the development more efficiently.

11. Joint Venture

45

11.1.4 Proficient Management Subsidiary

The proposed joint venture consortium will be able to reap operational efficiencies by capitalising on their previously incorporated management subsidiary, Raffles Quay Asset Management Pte Ltd (RQAM). RQAM is an established asset management company with a mandate to market and manage One Raffles Quay as well as Marina Bay Financial Centre. With a self-sufficient management subsidiary in place, the developers do not need to set up individual localised marketing and property management teams. This helps in saving time, effort and cost.

11.1.5 Joint Venture Flaws Undertaking a joint venture may sometimes result in negative consequences such as increased bureaucracy due to the different backgrounds and standard operating procedures of each joint venture partner. As a result, disagreements and delays in project execution may plague the project. In this case however, such bureaucracy is minimised as this consortium had previously collaborated together on projects such as One Raffles Quay and Marina Bay Financial Centre. This trio of joint venture partners would most likely have already established efficient operating procedures that can be used for subsequent joint venture projects such as this one.

11.2 Proposed Joint Venture Structure

An equal distribution of shares between the 3 developers is proposed. This is based on the previous model agreed upon when the consortium developed One Raffles Quay and Marina Bay Financial Centre. In addition, equal stakes between the developers will ensure that no developer can outrule the other.

Keppel Land,

33.33%

Hongkong Land,

33.33%

Cheung Kong ,

33.33%

Figure 44: Proposed Joint Venture Structure

11. Joint Venture

46

Figure 45: Proposed Joint Venture Structure

11.2.1 Development Cost after Joint Venture The table below summarises the initial equity contribution and total development cost for each scenarios provided in the financial analysis. The following outcomes are relevant only in the circumstance that Keppel Land approves of the proposed joint venture structure.

Scenario 1 Scenario 2 Scenario 3

Initial Equity Outlay $273,767,000 $213,400,000 $152,567,000 Total Development Cost $916,185,000 $935,283,000 $962,120,000

Figure 46: Initial Equity Outlay and Total Development Cost

11.3 Exit Strategy

We have devised a comprehensive exit strategy based on Keppel Land’s investment profile and objectives. We recommend divesting the 33.3% equity stake in the office component to Keppel REIT, which Keppel Land has a 45.21% stake in. This allows Keppel Land to effectively retain an indirect stake of circa 15.05% which maintains its exposure to the Marina Bay office market while realising the capital gains from the valuation surpluses. The exit strategy for the hotel component of the development will involve the other fund management platform of Keppel Land, Alpha Investment Partners. Alpha Investment Partners has various funds that are well-diversified among the different real estate assets such as hospitality, commercial, logistics and residential properties. As such, we are recommending the divestment of the 33.3% hotel stake to an Alpha Investment Partners Core Plus Fund, as a seed asset or an acquisition property should the opportunity arise. This exit strategy is aligned with two of Keppel Land’s corporate objectives - recycling capital to maximise returns and generate sustained growth as well as growing their fund management business.

11. Joint Venture

47

UNIQUE RISKS ANALYSIS

Summary Risks pertinent to this project include sensitive returns, the potential presence of negative cashflows as well as competitive future developments.

12.1 Office and Residential Dependent Return A sensitivity analysis was conducted to have a better understanding on the critical variables

that significantly impact the feasibility of this project. The analysis aims to quantify the

correlations of individual variables with the levered NPV.

Figure 47: Sensitivity Analysis for Critical Factors

According to the sensitivity analysis conducted above, the investment is found to be particularly susceptible to changes in the rental rates of the office spaces. The office rental has a positive correlation of 36.5% to the NPV. This makes the rental rates of office spaces a critical input in ensuring success of the whole investment. In view of this, the consortium should emphasise further on the marketability of office spaces. Office spaces that can cater to the needs of target tenants will be able to increase the bargaining power of the consortium during leasing negotiations. With market risk as a limiting factor in determining rental rates, a comprehensive marketing plan fused with strategic timing for tenant sourcing are also required. Aside from office rental rates, changes in the selling price of residential units is also observed to be highly correlated to the NPV. The residential sale price has a positive correlation of 17.8% to the NPV. The high sensitivity is most probably due to the residential component generating a relatively earlier income cashflow for the investment. Residential units with small floor area are recommended for increased marketability and higher price per unit area. In addition to what was mentioned beforehand, our residential sector will shoulder the exclusive brand of The Residences at Mandarin Oriental. This unique selling point will offer potential residents an exceptional lifestyle. Residents can enjoy the best of both worlds – the tranquility of a private home accompanied by the exquisite amenities and legendary service of the Mandarin Oriental Hotel. In order to maintain a positive NPV for the project, the consortium has to achieve an effective rent of $13.59 with 6% annual growth rate for their office spaces at the 4th year (completion).

-1.20%

-1.50%

-2.03%

2.60%

-3.10%

-6.41%

17.80%

36.50%

-10.00% -5.00% 0.00% 5.00% 10.00% 15.00% 20.00% 25.00% 30.00% 35.00% 40.00%

Construction Cost

Hotel Vacancy

Interest Rate

Hotel ADR

Discount Rate

Office Vacancy

Residential Sale Price

Office Rental

Correlation to Levered NPV

Var

iab

les

Sensitivity Chart

12. Unique Risks Analysis

!

48

In addition, residential units have to be sold at a minimum sale price of $2,538 psf in the 2nd year and $2,703 psf in the 3rd year.

12.2 Potential Presence of Negative Cashflows

The Keppel Land, Hongkong Land and Cheung Kong Property Holdings consortium is expected to face negative net cash outflows in most stages of the development. Negative cashflows are anticipated for Year 0 to Year 3 and Year 5 to Year 9. This is due to the high debt service incurred from the land acquisition loan. On the other hand, the bulk of the investment income is expected to only materialise at the end of the holding period when the office and hotel components are divested. In light of this, the consortium should be able to withstand any financial pressure generated by the previous negative cashflows in order to realise the full return on investment. Although it is highly unlikely for the consortium to default due to their large amount of available funds and low debt-to-equity ratio, it is still rational to embark on some precautionary measures. As shown in the DCF model annexed in Appendix V, the sales proceeds from the sale of residential units can be used as a source of funding to ease tight cashflows during the construction phase. Moreover, negative cashflows in the development process can also be ameliorated by obtaining a longer loan term for the land acquisition. In our DCF model, we assume the land loan to be fully-amortised within 10 years of the investment horizon. If the consortium is able to acquire a more competitive loan with longer fully-amortised term, its annual debt service will be curtailed. The remaining loan balance will then be repaid only at the end of the holding period as a lump sum.

12.3 White-Site Concentrated Area White-site zoning of unreleased land parcels in the surrounding Marina Bay area may give flexibility for future developers to follow in the consortium’s footsteps of adopting a residential, office and hotel mixed-use concept. This may increase competition and reduce the consortium’s market share as future developments with similar concepts progressively develop in Marina Bay. The consortium’s strategy of holding the development for only 6 years after its completion does not extinguish the risk of this contingency. The exit strategy of divesting the development via Keppel REIT will signify the existence of indirect equity stakes held by Keppel Land. As new competition emerges amidst the more established Marina Bay area, the consortium might have to consider conducting asset enhancement initiatives. This allows it to remain competitive against newer developments with similar concepts and mitigate any threat of being rendered obsolete.

Year Cashflows Year Cashflows

0 -$457,267,266 6 -$132,631,040 1 -$190,322,355 7 -$130,731,383 2 -$116,012,192 8 -$124,523,551 3 -$5,914,847 9 -$109,413,928 4 $62,361,209 10 $3,805,520,280 5 -$38,434,993

Figure 48: Cashflows for 80% LTV

12. Unique Risks Analysis

49

!

!

APPENDIX I: DISCOUNTED CASHFLOW (DCF) ASSUMPTIONS

Property Summary Year Equity Disbursement

Site Area 120,556 sq ft 2017 10% Plot Ratio 13 2018 30% GFA 1,567,224 sq ft 2019 30% Bonus GFA 2% 2020 30% Total GFA 1,598,568 sq ft

Typology

Office 66% Hotel 16% Residences 18%

Total GFA* 122,967 sq ft

Office 1,047,666 sq ft Hotel 263,160 sq ft Residences 287,742 sq ft

Space Efficiency

Office 68% Hotel 80% Residences 90%

NLA

Office 712,413 sq ft Hotel 210,528 sq ft Residences 258,968 sq ft

* The New Downtown, its compulsory to reach BCA Greenmark Platinum, and 2% GFA will be awarded

Professional Fees (% of Construction) Land Cost Fees (% of Land)

Architect 4% Stamp Fees 3%

Structural Engineer 1.15%

M&E Engineer 1.15%

Quantity Surveyor 1.15%

Landscape Consultant 0.55%

Project Manager 1%

Government Service Charge 7%

Letting (Office)

Property Tax (% of Gross Rent) 10% Lease Admin/Repairs/ Maintenance (% of Gross Rent) 5% Marketing Expense 1 Month Rental X 1.125 Lease Term 3 Years

Letting (Hotel) % of Gross Revenue

Rooms 65%

Food & Beverage 25% Other Income 10%

Gross Revenue 100% Department Expenses 33% Undistributed Operating Expense 22% Management Fee 2% Fixed Expenses 9.8% Letting (Carpark)

Property Tax (% of Gross Rent) 10% Operating Expenses 40%

Selling (Office, Hotel, Commercial & Carpark)

Marketing Expense 1%

Type Ratio Number of Carparks

374 Residential Units 1 Unit: 1 Carpark 374 1,027,100 sq ft Office Space 350 sq ft: 1 Carpark 272 24,000 sq ft Hotel Space 200 sq ft: 1 Carpark 120

Total 766* *392 Carpark was use in the DCF Model since Residential’s carpark does not generate income

APPENDIX II:

UNLEVERED DCF

0% LTV

OMV: $1,750,931,109

NPV: 0

IRR: 11%

Year 0 1 2 3 4 5 6 7 8 9 10 11

Total Mar-16 Mar-17 Mar-18 Mar-19 Mar-20 Mar-21 Mar-22 Mar-23 Mar-24 Mar-25 Mar-26 Mar-27

OUTFLOW

Land Cost (1,750,931,109)$ (1,750,931,109)$

Construction Cost & Professional Fees

Office (276,726,678)$ (27,672,668)$ (83,018,003)$ (83,018,003)$ (83,018,003)$

Hotel (100,669,832)$ (10,066,983)$ (30,200,949)$ (30,200,949)$ (30,200,949)$

Retail -$ -$ -$ -$ -$

Residential (99,590,400)$ (9,959,040)$ (29,877,120)$ (29,877,120)$ (29,877,120)$

Carpark (6,451,200)$ (645,120)$ (1,935,360)$ (1,935,360)$ (1,935,360)$

GST on Construction 7% (33,840,668)$ (3,384,067)$ (10,152,200)$ (10,152,200)$ (10,152,200)$

Professional Fees

Architect 4% (19,337,524)$ (1,933,752)$ (5,801,257)$ (5,801,257)$ (5,801,257)$

Structural Engineer 1.15% (5,559,538)$ (555,954)$ (1,667,861)$ (1,667,861)$ (1,667,861)$

M&E Engineer 1.15% (5,559,538)$ (555,954)$ (1,667,861)$ (1,667,861)$ (1,667,861)$

Quantity Surveyor 1.15% (5,559,538)$ (555,954)$ (1,667,861)$ (1,667,861)$ (1,667,861)$

Landscape Consultant 0.55% (2,658,910)$ (265,891)$ (797,673)$ (797,673)$ (797,673)$

Project Manager 1% (4,834,381)$ (483,438)$ (1,450,314)$ (1,450,314)$ (1,450,314)$

Stamp Fees 3% (52,527,933)$ (52,527,933)$

TOTAL OUTFLOWS (2,364,247,250)$ (1,803,459,042)$ (56,078,821)$ (168,236,462)$ (168,236,462)$ (168,236,462)$

INFLOW

Office

Rent Growth Factor 0.95 0.9025 0.95665 1.014049 1.07489194 1.139385456 1.207748584 1.280213499 1.357026309 1.438447887 1.52475476 1.616240046

Rent $11.33 $10.77 $11.41 $12.10 $12.82 $13.59 $14.41 $15.27 $16.19 $17.16 $18.19 $19.28

Total Net Rental @ 100% Occupancy 770,867,776$ 117,277,065$ 117,277,065$ 117,277,065$ 139,678,861$ 139,678,861$ 139,678,861$ 166,359,758$

Less: Vacancy Allowance 69,378,100$ 10,554,936$ 10,554,936$ 10,554,936$ 12,571,097$ 12,571,097$ 12,571,097$ 14,972,378$

Rental Income % of Rental Income 701,489,676$ 106,722,129$ 106,722,129$ 106,722,129$ 127,107,763$ 127,107,763$ 127,107,763$ 151,387,380$

Less: Property Tax 10% 70,148,968$ 10,672,213$ 10,672,213$ 10,672,213$ 12,710,776$ 12,710,776$ 12,710,776$ 15,138,738$

Less: Lease Admin/Repairs/Maintenance 5% 35,074,484$ 5,336,106$ 5,336,106$ 5,336,106$ 6,355,388$ 6,355,388$ 6,355,388$ 7,569,369$

Less: Marketing Expenses 1 Month 24,089,618$ 10,994,725$ 13,094,893$

Net Operating Income 572,176,607$ 79,719,085$ 90,713,810$ 90,713,810$ 94,946,705$ 108,041,599$ 108,041,599$ 128,679,273$

Terminal Value 4.25% 3,027,747,591$

Less: Marketing Expense 1.00% 30,277,476$

Cashflow 3,569,646,722$ 79,719,085$ 90,713,810$ 90,713,810$ 94,946,705$ 108,041,599$ 3,105,511,714$

Hotel

Growth Factor 1.06 1.12 1.19 1.26 1.34 1.42 1.50 1.59 1.69 1.79 1.90 2.01

Average Daily Rate 467.69$ 495.75$ 525.49$ 557.02$ 590.44$ 625.87$ 663.42$ 703.23$ 745.42$ 790.15$ 837.56$ 887.81$

Revenue % of Gross Revenue

Rooms 65.00% 407,903,467$ 58,478,113$ 61,986,800$ 65,706,008$ 69,648,368$ 73,827,270$ 78,256,907$ 82,952,321$

Food & Beverage 25.00% 156,885,949$ 22,491,582$ 23,841,077$ 25,271,542$ 26,787,834$ 28,395,104$ 30,098,810$ 31,904,739$

Other Income 10.00% 62,754,379$ 8,996,633$ 9,536,431$ 10,108,617$ 10,715,134$ 11,358,042$ 12,039,524$ 12,761,896$

Total Revenue 100.00% 627,543,795$ 89,966,328$ 95,364,308$ 101,086,166$ 107,151,336$ 113,580,416$ 120,395,241$ 127,618,956$

Less: Department Expenses 33.00% 207,089,452$ 29,688,888$ 31,470,221$ 33,358,435$ 35,359,941$ 37,481,537$ 39,730,430$ 42,114,255$

Less: Undistributed Operating Expense 22.00% 138,059,635$ 19,792,592$ 20,980,148$ 22,238,957$ 23,573,294$ 24,987,692$ 26,486,953$ 28,076,170$

Less: Management Fee 2.00% 12,550,876$ 1,799,327$ 1,907,286$ 2,021,723$ 2,143,027$ 2,271,608$ 2,407,905$ 2,552,379$

Less: Fixed Expenses 9.80% 61,499,292$ 8,816,700$ 9,345,702$ 9,906,444$ 10,500,831$ 11,130,881$ 11,798,734$ 12,506,658$

Net Operating Income 29,868,821$ 31,660,950$ 33,560,607$ 35,574,244$ 37,708,698$ 39,971,220$ 42,369,493$

Terminal Value 4.50% 941,544,295$ 941,544,295$

Less: Marketing Expense 1.00% 9,415,443$ 9,415,443$

Cashflow 1,140,473,391$ 29,868,821$ 31,660,950$ 33,560,607$ 35,574,244$ 37,708,698$ 972,100,072$

Residential

Price Growth Factor 1 1 1.065 1.134225

PSF 2,383.09$ 2,383.09$ 2,537.99$ 2,702.96$

Sale Price % of Sale Price

Booking Fee 10.00% 69,857,763$ 33,829,425$ 36,028,338$

Sales & Purchase Agreement 10.00% 139,715,526$ 33,829,425$ 36,028,338$

Foundation 10.00% 139,715,526$ 33,829,425$ 36,028,338$

Framework 10.00% 139,715,526$ 69,857,763$

Walls 5.00% 104,786,644$ 34,928,881$

Ceiling 5.00% 69,857,763$ 34,928,881$

Carpentry 5.00% 69,857,763$ 34,928,881$

Paving 5.00% 69,857,763$ 34,928,881$

Temporary Occupier Permit 25.00% 209,573,289$ 174,644,407$

Certificate of Statutory Completion 15.00% 279,431,052$ 104,786,644$

Less: Marketing Expense 1.00% 111,772,421$ 3,382,943$ 3,602,834$

Cashflow 698,577,630$ 98,105,333$ 209,268,824$ 279,431,052$ 104,786,644$

Carpark

Gross Income 392 7,056,000$ 1,176,000$ 1,176,000$ 1,176,000$ 1,176,000$ 1,176,000$ 1,176,000$ 1,176,000$

Less: Operating Expenses 40.00% 2,822,400$ 470,400$ 470,400$ 470,400$ 470,400$ 470,400$ 470,400$ 470,400$

Net Income 705,600$ 705,600$ 705,600$ 705,600$ 705,600$ 705,600$ 705,600$

Less: Property Tax 10.00% 423,360$ 70,560$ 70,560$ 70,560$ 70,560$ 70,560$ 70,560$ 70,560$

Net Operating Income 635,040$ 635,040$ 635,040$ 635,040$ 635,040$ 635,040$ 635,040$

Terminal Value 6.00% 10,584,000$ 10,584,000$

Less: Marketing Expense 1.00% 105,840$ 105,840$

Cashflow 635,040$ 635,040$ 635,040$ 635,040$ 635,040$ 11,113,200$

BEFORE TAX CASH FLOW 3,051,753,117$ (1,803,459,042)$ (56,078,821)$ (70,131,129)$ 41,032,362$ 111,194,590$ 215,009,590$ 123,009,800$ 124,909,457$ 131,155,989$ 146,385,337$ 4,088,724,986$

Discount Rate 11%

Years from the Valuation Date 0 1 2 3 4 5 6 7 8 9 10

Discount Factor 1 0.901 0.812 0.731 0.659 0.593 0.535 0.482 0.434 0.391 0.352

Present Value of FCF (1,803,459,042) (50,521,460) (56,919,998) 30,002,509 73,247,320 127,597,727 65,766,062 60,163,690 56,912,059 57,225,654 1,439,985,478

NPV 0.00

IRR 11%

APPENDIX III: LEVERED DCF 60% LTV BID PRICE: $1,911,533,403 NPV: 0 IRR: 14.0%


OUTFLOW

Land Cost (764,613,361.31)$ ($764,613,361)


Office (110,690,671.28)$ ($11,069,067) ($33,207,201) ($33,207,201) ($33,207,201)

Hotel (40,267,932.63)$ ($4,026,793) ($12,080,380) ($12,080,380) ($12,080,380)

Residential (39,836,160.00)$ ($3,983,616) ($11,950,848) ($11,950,848) ($11,950,848)

Carpark (2,893,692.46)$ ($289,369) ($868,108) ($868,108) ($868,108)

GST on Construction 7% (13,558,191.95)$ ($1,355,819) ($4,067,458) ($4,067,458) ($4,067,458)

Professional Fees

Architect 4% (7,747,538.25)$ ($774,754) ($2,324,261) ($2,324,261) ($2,324,261)

Structural Engineer 1.15% (2,227,417.25)$ ($222,742) ($668,225) ($668,225) ($668,225)

M&E Engineer 1.15% (2,227,417.25)$ ($222,742) ($668,225) ($668,225) ($668,225)

Quantity Surveyor 1.15% (2,227,417.25)$ ($222,742) ($668,225) ($668,225) ($668,225)

Landscape Consultant 0.55% (1,065,286.51)$ ($106,529) ($319,586) ($319,586) ($319,586)

Project Manager 1% (1,936,884.56)$ ($193,688) ($581,065) ($581,065) ($581,065)

Stamp Fees 3% (57,346,002.10)$ ($57,346,002)

TOTAL OUTFLOWS (1,046,637,972.80)$ ($821,959,363) ($22,467,861) ($67,403,583) ($67,403,583) ($67,403,583)

INFLOW

Office


Rent $11.33 $10.77 $11.41 $12.10 $12.82 $13.59 $14.41 $15.27 $16.19 $17.16 $18.19 $19.28








Terminal Value 4.25% 3,000,065,328$ 3,000,065,328$


Cashflow 3,537,009,952$ 78,990,225$ 89,884,426$ 89,884,426$ 94,078,621$ 107,053,790$ 3,077,118,464$

Hotel

Growth Factor 1.06 1.12 1.19 1.26 1.34 1.42 1.50 1.59 1.69 1.79 1.90 2.01



Rooms 65.00% 407,903,467$ 58,478,113$ 61,986,800$ 65,706,008$ 69,648,368$ 73,827,270$ 78,256,907$ 82,952,321$

Food & Beverage 25.00% 156,885,949$ 22,491,582$ 23,841,077$ 25,271,542$ 26,787,834$ 28,395,104$ 30,098,810$ 31,904,739$

Other Income 10.00% 62,754,379$ 8,996,633$ 9,536,431$ 10,108,617$ 10,715,134$ 11,358,042$ 12,039,524$ 12,761,896$

Total Revenue 100.00% 627,543,795$ 89,966,328$ 95,364,308$ 101,086,166$ 107,151,336$ 113,580,416$ 120,395,241$ 127,618,956$






Terminal Value 4.50% 941,544,295$ 941,544,295$


Cashflow 1,140,473,391$ 29,868,821$ 31,660,950$ 33,560,607$ 35,574,244$ 37,708,698$ 972,100,072$

Residential


PSF 2,383.09$ 2,383.09$ 2,537.99$ 2,702.96$


Booking Fee 10.00% 71,254,918$ 34,506,014$ 36,748,905$


Foundation 10.00% 71,254,918$ 34,506,014$ 36,748,905$

Framework 10.00% 71,254,918$ 71,254,918$

Walls 5.00% 35,627,459$ 35,627,459$

Ceiling 5.00% 35,627,459$ 35,627,459$

Carpentry 5.00% 35,627,459$ 35,627,459$

Paving 5.00% 35,627,459$ 35,627,459$




Cashflow 705,423,691$ 100,067,440$ 213,454,201$ 285,019,673$ 106,882,377$

Carpark

Gross Income 392 1,176,000$ 1,176,000$ 1,176,000$ 1,176,000$ 1,176,000$ 1,176,000$ 1,176,000$


Net Income 9,878,400$ 705,600$ 705,600$ 705,600$ 705,600$ 705,600$ 705,600$ 705,600$

Less: Property Tax 10.00% 7,056,000$ 70,560$ 70,560$ 70,560$ 70,560$ 70,560$ 70,560$ 70,560$

Net Operating Income 4,656,960$ 635,040$ 635,040$ 635,040$ 635,040$ 635,040$ 635,040$ 635,040$

Terminal Value 6.00% 4,233,600$ 10,584,000$

Less: Marketing Expense 1.00% 14,394,240$ 105,840$

Cashflow 635,040$ 635,040$ 635,040$ 635,040$ 635,040$ 11,113,200$

Total Inflow (821,959,363)$ (22,467,861)$ 32,663,857$ 146,050,618$ 217,616,090$ 216,376,463$ 122,180,416$ 124,080,073$ 130,287,905$ 145,397,528$ 4,060,331,736$

Less: Debt Service 129,173,942$ 131,641,004$ 134,108,065$ 136,575,127$ 185,966,215$ 185,966,215$ 185,966,215$ 185,966,215$ 185,966,215$ 185,966,215$

BEFORE TAX CASH FLOW (821,959,363)$ (151,641,803)$ (98,977,147)$ 11,942,552$ 81,040,963$ 30,410,247$ (63,785,799)$ (61,886,142)$ (55,678,311)$ (40,568,687)$ 3,874,365,520$

Discount Rate 14%


Discount Factor 1 0.877 0.769 0.675 0.592 0.519 0.456 0.400 0.351 0.308 0.270

Present Value of FCF (821,959,363) (133,019,125) (76,159,701) 8,060,883 47,982,756 15,794,130 (29,059,952) (24,732,012) (19,518,536) (12,475,194) 1,045,086,115

Levered NPV 0.00

Levered IRR 14.00%

APPENDIX IV: LEVERED DCF 70% LTV BID PRICE: $1,988,118,548 NPV: 0 IRR: 15%

Year 0 1 2 3 4 5 6 7 8 9 10 11


OUTFLOW

Land Cost (580,578,737.00)$ ($580,578,737)


Office (83,018,003.46)$ ($8,301,800) ($24,905,401) ($24,905,401) ($24,905,401)

Hotel (30,200,949.47)$ ($3,020,095) ($9,060,285) ($9,060,285) ($9,060,285)

Residential (29,877,120.00)$ ($2,987,712) ($8,963,136) ($8,963,136) ($8,963,136)

Carpark (2,170,269.35)$ ($217,027) ($651,081) ($651,081) ($651,081)

GST on Construction 7% (10,168,643.96)$ ($1,016,864) ($3,050,593) ($3,050,593) ($3,050,593)

Professional Fees

Architect 4% (5,810,653.69)$ ($581,065) ($1,743,196) ($1,743,196) ($1,743,196)


M&E Engineer 1.15% (1,670,562.94)$ ($167,056) ($501,169) ($501,169) ($501,169)


Landscape Consultant 0.55% (798,964.88)$ ($79,896) ($239,689) ($239,689) ($239,689)

Project Manager 1% (1,452,663.42)$ ($145,266) ($435,799) ($435,799) ($435,799)

Stamp Fees 3% (58,057,873.70)$ ($58,057,874)

TOTAL OUTFLOWS (807,145,567.75)$ ($638,636,611) ($16,850,896) ($50,552,687) ($50,552,687) ($50,552,687)

INFLOW

Office


Rent $11.33 $10.77 $11.41 $12.10 $12.82 $13.59 $14.41 $15.27 $16.19 $17.16 $18.19 $19.28








Terminal Value 4.25% 3,000,065,328$ 3,000,065,328$


Cashflow 3,537,009,952$ 78,990,225$ 89,884,426$ 89,884,426$ 94,078,621$ 107,053,790$ 3,077,118,464$

Hotel

Growth Factor 1.06 1.12 1.19 1.26 1.34 1.42 1.50 1.59 1.69 1.79 1.90 2.01



Rooms 65.00% 407,903,467$ 58,478,113$ 61,986,800$ 65,706,008$ 69,648,368$ 73,827,270$ 78,256,907$ 82,952,321$

Food & Beverage 25.00% 156,885,949$ 22,491,582$ 23,841,077$ 25,271,542$ 26,787,834$ 28,395,104$ 30,098,810$ 31,904,739$

Other Income 10.00% 62,754,379$ 8,996,633$ 9,536,431$ 10,108,617$ 10,715,134$ 11,358,042$ 12,039,524$ 12,761,896$

Total Revenue 100.00% 627,543,795$ 89,966,328$ 95,364,308$ 101,086,166$ 107,151,336$ 113,580,416$ 120,395,241$ 127,618,956$






Terminal Value 4.50% 941,544,295$ 941,544,295$


Cashflow 1,140,473,391$ 29,868,821$ 31,660,950$ 33,560,607$ 35,574,244$ 37,708,698$ 972,100,072$

Residential


PSF 2,383.09$ 2,383.09$ 2,537.99$ 2,702.96$


Booking Fee 10.00% 71,254,918$ 34,506,014$ 36,748,905$


Foundation 10.00% 71,254,918$ 34,506,014$ 36,748,905$

Framework 10.00% 71,254,918$ 71,254,918$

Walls 5.00% 35,627,459$ 35,627,459$

Ceiling 5.00% 35,627,459$ 35,627,459$

Carpentry 5.00% 35,627,459$ 35,627,459$

Paving 5.00% 35,627,459$ 35,627,459$




Cashflow 705,423,691$ 100,067,440$ 213,454,201$ 285,019,673$ 106,882,377$

Carpark

Gross Income 392 1,176,000$ 1,176,000$ 1,176,000$ 1,176,000$ 1,176,000$ 1,176,000$ 1,176,000$


Net Income 9,878,400$ 705,600$ 705,600$ 705,600$ 705,600$ 705,600$ 705,600$ 705,600$



Terminal Value 6.00% 4,233,600$ 10,584,000$


Cashflow 635,040$ 635,040$ 635,040$ 635,040$ 635,040$ 11,113,200$

Total Inflow (638,636,611)$ (16,850,896)$ 49,514,753$ 162,901,513$ 234,466,986$ 216,376,463$ 122,180,416$ 124,080,073$ 130,287,905$ 145,397,528$ 4,060,331,736$


BEFORE TAX CASH FLOW (638,636,611)$ (169,412,687)$ (105,925,278)$ 4,583,244$ 73,270,478$ (2,442,981)$ (96,639,028)$ (94,739,371)$ (88,531,539)$ (73,421,916)$ 3,841,512,292$

Discount Rate 15%


Discount Factor 1 0.870 0.756 0.658 0.572 0.497 0.432 0.376 0.327 0.284 0.247

Present Value of FCF (638,636,611) (147,315,380) (80,094,728) 3,013,557 41,892,634 (1,214,593) (41,779,719) (35,616,039) (28,941,117) (20,871,091) 949,563,087

Levered NPV 0.00

Levered IRR 15.00%

APPENDIX V:

LEVERED DCF

80% LTV

BID PRICE: $1,987,974,954

NPV: 0

IRR: 16%

Year 0 1 2 3 4 5 6 7 8 9 10 11


OUTFLOW

Land Cost (397,623,709.65)$ ($397,623,710)


Office (55,345,335.64)$ ($5,534,534) ($16,603,601) ($16,603,601) ($16,603,601)

Hotel (20,133,966.31)$ ($2,013,397) ($6,040,190) ($6,040,190) ($6,040,190)

Residential (19,918,080.00)$ ($1,991,808) ($5,975,424) ($5,975,424) ($5,975,424)

Carpark (1,446,846.23)$ ($144,685) ($434,054) ($434,054) ($434,054)

GST on Construction 7% (6,779,095.97)$ ($677,910) ($2,033,729) ($2,033,729) ($2,033,729)

Professional Fees

Architect 4% (3,873,769.13)$ ($387,377) ($1,162,131) ($1,162,131) ($1,162,131)


M&E Engineer 1.15% (1,113,708.62)$ ($111,371) ($334,113) ($334,113) ($334,113)


Landscape Consultant 0.55% (532,643.26)$ ($53,264) ($159,793) ($159,793) ($159,793)

Project Manager 1% (968,442.28)$ ($96,844) ($290,533) ($290,533) ($290,533)

Stamp Fees 3% (59,643,556.45)$ ($59,643,556)

TOTAL OUTFLOWS (569,606,570.80)$ ($457,267,266) ($11,233,930) ($33,701,791) ($33,701,791) ($33,701,791)

INFLOW

Office


Rent $11.33 $10.77 $11.41 $12.10 $12.82 $13.59 $14.41 $15.27 $16.19 $17.16 $18.19 $19.28








Terminal Value 4.25% 3,000,065,328$ 3,000,065,328$


Cashflow 3,537,009,952$ 78,990,225$ 89,884,426$ 89,884,426$ 94,078,621$ 107,053,790$ 3,077,118,464$

Hotel

Growth Factor 1.06 1.12 1.19 1.26 1.34 1.42 1.50 1.59 1.69 1.79 1.90 2.01



Rooms 65.00% 407,903,467$ 58,478,113$ 61,986,800$ 65,706,008$ 69,648,368$ 73,827,270$ 78,256,907$ 82,952,321$

Food & Beverage 25.00% 156,885,949$ 22,491,582$ 23,841,077$ 25,271,542$ 26,787,834$ 28,395,104$ 30,098,810$ 31,904,739$

Other Income 10.00% 62,754,379$ 8,996,633$ 9,536,431$ 10,108,617$ 10,715,134$ 11,358,042$ 12,039,524$ 12,761,896$

Total Revenue 100.00% 627,543,795$ 89,966,328$ 95,364,308$ 101,086,166$ 107,151,336$ 113,580,416$ 120,395,241$ 127,618,956$






Terminal Value 4.50% 941,544,295$ 941,544,295$


Cashflow 1,140,473,391$ 29,868,821$ 31,660,950$ 33,560,607$ 35,574,244$ 37,708,698$ 972,100,072$

Residential


PSF 2,383.09$ 2,383.09$ 2,537.99$ 2,702.96$


Booking Fee 10.00% 71,254,918$ 34,506,014$ 36,748,905$


Foundation 10.00% 71,254,918$ 34,506,014$ 36,748,905$

Framework 10.00% 71,254,918$ 71,254,918$

Walls 5.00% 35,627,459$ 35,627,459$

Ceiling 5.00% 35,627,459$ 35,627,459$

Carpentry 5.00% 35,627,459$ 35,627,459$

Paving 5.00% 35,627,459$ 35,627,459$




Cashflow 705,423,691$ 100,067,440$ 213,454,201$ 285,019,673$ 106,882,377$

Carpark

Gross Income 392 1,176,000$ 1,176,000$ 1,176,000$ 1,176,000$ 1,176,000$ 1,176,000$ 1,176,000$


Net Income 9,878,400$ 705,600$ 705,600$ 705,600$ 705,600$ 705,600$ 705,600$ 705,600$



Terminal Value 6.00% 4,233,600$ 10,584,000$


Cashflow 635,040$ 635,040$ 635,040$ 635,040$ 635,040$ 11,113,200$

Total Inflow (457,267,266)$ (11,233,930)$ 66,365,648$ 179,752,409$ 251,317,882$ 216,376,463$ 122,180,416$ 124,080,073$ 130,287,905$ 145,397,528$ 4,060,331,736$


BEFORE TAX CASH FLOW (457,267,266)$ (190,322,355)$ (116,012,192)$ (5,914,847)$ 62,361,209$ (38,434,993)$ (132,631,040)$ (130,731,383)$ (124,523,551)$ (109,413,928)$ 3,805,520,280$

Discount Rate 16%


Discount Factor 1 0.862 0.743 0.641 0.552 0.476 0.410 0.354 0.305 0.263 0.227

Present Value of FCF (457,267,266) (164,070,996) (86,215,957) (3,789,392) 34,441,541 (18,299,401) (54,437,383) (46,256,624) (37,982,853) (28,770,719) 862,649,050

Levered NPV 0.00

Levered IRR 16.00%

APPENDIX VI: MONTE CARLO ASSUMPTIONS

* Cap rate for Office and Hotel Space is estimated to be 4.25% and 4.50% as stated by CBRE.

** Discount Rate will be higher due to the inherent risk of increasing debts to finance development.

Name Type Distribution Mean St. Dev Min Max

Rents (PSF) Office Normal $11.93 $1.11 $5.90 $21.50

Growth Rate 2016-2017 Uniformed -5.00% - -6.00% -4.00%

Growth Rate 2018> 5.00% - 4.00% 6.00%

RevPAR Hotel Normal $441.21 $14.24 $423.30 $462.70

Growth Rate 2016> Uniformed 6.00% - 5.00% 7.00%

GDV (PSF) Residential Normal $2383.09 $220.22 $2011.00 $2861.00

Growth Rate 2016-2017 Uniformed 0.00% -2.00% 2.00%

Growth Rate 2018> 5.00% 3.00% 7.00%

Vacancies Office Normal 9.21% 2.02% 6.40% 12.89%

Hotel 14.67% 3.07% 9.60% 18.60%

Construction Cost (PSF) Office Uniformed $269.00 - $255.00 $283.00

Hotel $392.50 - $367.00 $418.00

Residential $341.50 - $274.00 $409.00

Carparks $148.50 - $125.00 $172.00

Interest Rate Mixed Used Uniformed

Land 2.10% - 2.00% 2.20%

Construction 2.60% - 2.40% 2.80%

Exit Cap Rate* Office Normal 4.25% 0.25% 4.00% 4.50%

Hotel 4.50% 0.25% 4.25% 4.75%

Carparks 6.00% 0.25% 5.25% 6.25%

Discount Rate**

0% LTV Mixed Used Uniformed 11.00% - 10.50% 11.50%

60% LTV 14.00% - 13.50% 14.50%

70% LTV 15.00% - 14.50% 15.50%

80% LTV 16.00% - 15.50% 16.50%

APPENDIX VII: RESULTS FROM MONTE CARLO 0% LTV

APPENDIX VIII: RESULTS FROM MONTE CARLO 60% LTV

Forecast: Levered NPV Forecast: Levered IRR

Statistic Forecast values Statistic Forecast values

Trials 100,000 Trials 100,000

Base Case 6,045,067 Base Case 14.07%

Mean 12,254,996 Mean 14.09%

Median 9,720,156 Median 14.12%

Mode '--- Mode '---

Standard Deviation 120,982,812 Standard Deviation 1.35%

Variance 14,636,840,876,710,600 Variance 0.02%

Skewness 0.12 Skewness -0.1169

Kurtosis 2.99 Kurtosis 3

Coeff. of Variation 9.87 Coeff. of Variation 0.0962

Minimum -495,567,881 Minimum 7.49%

Maximum 598,313,493 Maximum 19.37%

Mean Std. Error 382,581 Mean Std. Error 0.00%


Percentile Forecast values Percentile Forecast values 0% -495,567,881 0% 7.49%

10% -140,800,036 10% 12.34% 20% -91,222,952 20% 12.95% 30% -53,623,184 30% 13.39%

40% -21,080,868 40% 13.77%

50% 9,719,135 50% 14.12%

60% 41,111,545 60% 14.46% 70% 74,454,241 70% 14.82%

80% 113,801,160 80% 15.24% 90% 169,100,203 90% 15.81% 100% 598,313,493 100% 19.37%

Forecast: NPV


Trials 100,000

Base Case 1,803,459,042

Mean 1,825,512,482

Median 1,821,482,190

Mode '---

Standard Deviation 157,586,155

Variance 24,833,396,317,731,100

Coeff. of Variation 0.086

Minimum 1,242,844,390

Maximum 2,584,958,587

Mean Std. Error 498,331

APPENDIX IX: RESULTS FROM MONTE CARLO 70% LTV



Trials 100,000 Trials 100,000

Base Case 584,253 Base Case 15.01%

Mean 5,399,183 Mean 15.01%

Median 3,192,468 Median 15.04%

Mode '--- Mode '---

Standard Deviation 111,867,000 Standard Deviation 1.48%

Variance 12,514,225,723,515,400 Variance 0.02%


Kurtosis 3.03 Kurtosis 3.06


Minimum -455,819,158 Minimum 7.78%

Maximum 526,201,881 Maximum 20.47%

Mean Std. Error 353,755 Mean Std. Error 0.00%


Percentile Forecast values Percentile Forecast values

0% -455,819,158 0% 7.78%

10% -136,227,096 10% 13.10%

20% -89,400,320 20% 13.78%

30% -54,672,697 30% 14.26%

40% -25,132,616 40% 14.67%

50% 3,182,278 50% 15.04%

60% 31,587,388 60% 15.42%

70% 62,908,211 70% 15.81%

80% 99,110,104 80% 16.27%

90% 150,374,219 90% 16.89%

100% 526,201,881 100% 20.47%

APPENDIX X: RESULTS FROM MONTE CARLO 80% LTV



Trials 100,000.00 Trials 100,000

Base Case 2,007,443.37 Base Case 16.03%

Mean 5,460,017.19 Mean 16.02%

Median 3,096,147.69 Median 16.06%

Mode '--- Mode '---

Standard Deviation 103,411,302.50 Standard Deviation 1.64%

Variance 10,693,897,485,521,200.00 Variance 0.03%


Kurtosis 3.00 Kurtosis 3.01


Minimum -424,312,104.98 Minimum 7.26%

Maximum 451,434,195.69 Maximum 22.00%

Mean Std. Error 327,015.25 Mean Std. Error 0.01%

Forecast: Levered NPV Forecast: Levered IRR Percentile Forecast values Percentile Forecast values

0% (424,312,104.98) 0% 8.15% 10% (125,948,949.34) 10% 13.91% 20% (82,377,151.67) 20% 14.66% 30% (50,601,806.81) 30% 15.19% 40% (22,810,735.77) 40% 15.64% 50% 3,095,806.18 50% 16.06% 60% 29,678,095.61 60% 16.47% 70% 58,405,877.14 70% 16.91% 80% 91,844,381.91 80% 17.41% 90% 139,460,648.70 90% 18.10% 100% $ 451,434,195.69 100% 22.40%

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