Find out what's behind the surprising top bid for hotel site at Victoria Street

The market initially expected top bid to only range $850-$930 psfpsr.

On 11 Oct 2012, the tender for a 99-yr LH (GFA 333,436sqft) Hotel / mixed commercial site at Victoria Street closed, attracting a top bid of S$331.3mn, which works out to c. S$994 psfppr.

Amongst the 9 bidders, Forward Land Pte Ltd had submitted the top bid, which was 9.1% above the 2nd-highest bid by Hoi Hup + Sunway Developments JV. Other bidders included subsidiaries of City Developments, Far East, Fragrance and United Engineers. The lowest bid was submitted by local developer Peak Sky Pte Ltd, which was approximately 87% lower than the top bid.

According to Nomura Research, when the site was first triggered from the reserve list in August 2012, the market had expected a winning bid between S$850-930psfppr, comparing it against a smaller plot along Farrer Road, which was sold to RB capital in Apr 2012 for S$1,080psfppr.

Here's more from Nomura:

Overall, we judge the bid as positive, in terms of bidder participation as well as the top bid, which appears to have beaten initial market expectations.

Higher-than-expected top bid reflects positive sentiment towards the Hotel sector, likely driven by positive tourism statistics Based on the land cost of S$994 psfppr, our breakeven estimate works out to S$1,836-1,913psfppr, assuming an 80% NLA efficiency. This works out to about c. S$785,000-1,000,000 per key, assuming a 500- to 650-room hotel is built.

We think that the bid reflects the market’s overall positive view towards the Hotel sector, driven by recent positive RevPAR and tourism statistics. In addition, the bid appears to provide some support for CDLHT’s valuations (c. S$650,000 per key) for its SG hotel portfolio, which may lead to some support for the stock price, in our view.

Transaction may provide some uplift for Hotel stocks; nevertheless we caution that macro uncertainty remains a key downside risk for the Hotel sector.

As such, we think that investors are likely to read the transaction positively, which may offer some positive uplift for CDLHT and indirectly even ASHT. Nevertheless, we caution that macro uncertainties remain and could pose a significant downside risk should conditions deteriorate.