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Parkway dives 8.3% on record bid for site

Winning bid of $1,600 psf ppr for Novena hospital site is over twice the second highest offer

 

SHARES of Parkway Holdings took a beating yesterday as concerns emerged that the healthcare provider might have overpaid for a hospital site at Novena.

Parkway’s stock slipped as much as 9.7 per cent yesterday following Friday’s news that the company had put in the top bid of $1.25 billion for a 1.7 ha site at Novena Terrace/Irrawaddy Road.

The stock ended the day down 30 cents, or 8.3 per cent, at $3.30. The Urban Redevelopment Authority (URA) officially awarded the site to Parkway yesterday.

Parkway’s bid, which works out to be about $1,600 per square foot per plot ratio (psf ppr) is a record price for land, and tops the previous record set by Australia’s Lend Lease, which paid $1,455 psf ppr for a commercial site above Somerset MRT station in August 2006.

The bullish bid was also more than twice the $540.9 million offered by second highest bidder, Napier Medical.

Analysts, who estimate that Parkway’s total development cost could be about $1.6 billion-$1.8 billion, said that Parkway had overpaid for the site.

‘We believe capacity constraints at Mount Elizabeth Hospital and Gleneagles Hospital have pressured Parkway Holdings to be overly aggressive to secure the site,’ said UOB-Kay Hian analyst Jonathan Koh. ‘Parkway also does not want a competitor to secure the hospital site.’

Mr Koh’s recommendation on Parkway is under review due to the massive bid. He previously had a ‘buy’ call on the stock.

Citigroup analyst Lim Jit Soon reiterated his ‘sell’ call on the stock, pointing out that the project will stretch Parkway’s balance sheet.

‘Gearing could rise to 171 per cent even before development costs are factored in,’ Mr Lim said. ‘In a credit crunch environment, securing financing might be an issue.’

Mr Lim added that Parkway’s strategy could be to finance the development of the hospital by selling the medical suites to doctors at between $4,000 and $5,000 psf. But while this strategy could work, ‘the company will have to convince investors that it did not overpay for the site’, he said.

CIMB Research agreed that Parkway has overpaid, especially when looking at prices in the Novena area.

‘Compared to bids for land sites in the Novena area, (Parkway’s) bid is more than three times that of Far East Organization’s bid of $501.2 psf ppr for a hotel site at Sinaran Drive in January 2007 and Frasers Centrepoint’s bid of $506.9 psf ppr for a residential site at Sinaran Drive in July 2006,’ said analyst Tan Wei Ling.

Ms Tan cut Parkway’s target price to $4.19 from $4.53 due to rising risk aversion.

But she is maintaining Parkway’s ‘outperform’ rating for now due to the company’s growing regional franchise, good earnings prospects and relatively attractive dividend yields, she said.

 

Source: Business Times 19 Feb 08

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