Singapore Land

DMG & Partners Research, March 6

IN a long-anticipated move, United Industrial Corporation (UIC) recently announced an unconditional cash offer for its 80.4 per cent-owned subsidiary Singapore Land (SingLand).

The latter owns a sizeable portfolio of prime office properties with NLA totalling 2.1 million sq ft, including Singapore Land Tower, Clifford Centre, The Gateway and SGX Centre 2. In addition, it owns stakes in shopping malls and, through Marina Centre Holdings (MCH), controls Marina Square and the hotels in the Marina belt. SingLand is arguably the crown jewel within the UOL Group given its asset-rich portfolio and a successful privatisation would pave the way for further consolidation of UIC into UOL Group. This, we think, is the end game-plan for the Wee family.

We think UIC's offer price is unattractive against our estimate of Singland's RNAV of S$14.50/share, implying a steep discount of 35 per cent. While the offer is in-line with the trading discount of real estate developers, SingLand deserves a premium over its peers in the real estate sector as:

1) Substantially all of its assets are in the office, retail and hotel sectors, which tend to generate steady recurring income as compared to the more lumpy property development segment, which currently makes up a small part of SingLand's RNAV. Operating risk is much lower as a landlord.

2) SingLand's large portfolio of prime real estate properties include Singapore Land Tower, Clifford Centre, The Gateway, SGX Centre 2 and the Marina Square hotels and retail complex. Investment properties with good rental streams, such as SingLand's, are highly marketable assets as they can be packaged into Reits and sold at close to market value.

3) SingLand's hotels, held via MCH, are carried at book cost of around S$300,000 per key, against our conservative estimate of S$900,000 per key. Marked to market, this would generate a surplus of S$391 million, or S$0.95/share.

4) UOL Group has been streamlining its operating units, and last year privatised its 82 per cent-held hotel arm, Pan Pacific Hotels Group, at near RNAV. The offer for SingLand, at 35 per cent discount to RNAV, is deeply discounted when its asset backing, balance sheet strength and a strengthening office cycle are taken into consideration.

We think the eventual consolidation of SingLand within UOL Group is a strategic imperative for UOL Group, as it would bolster its investment property portfolio, modest currently, to a significant size.

There are also numerous common holdings among UOL/UIC and SingLand in various property interests, which make consolidation compelling from an operational consideration. For instance, MCH is currently 22.7-per cent owned by UOL, while SingLand owns a 53-per cent stake. In the same vein, West Mall is 50 per cent held by SingLand while the other 50 per cent is held by UIC.

SingLand has persistently traded above the offer price since the announcement of the offer. We recommend investors to reject UIC's low-ball offer. We also believe there is a good likelihood of the offer price being raised by UIC.

The wild card is Silchester International Investor LLC's intention, which currently owns a 8.2 per cent stake in SingLand.

We think it would seek a higher exit price for its SingLand's stake, having held it for close to a decade and in all likelihood recognisant of the deep value in SingLand. We recommend a "trading buy" on SingLand, paying a small option fee for the prospects of a raised offer. Our target price of S$10.85 is pegged to a 25 per cent discount to RNAV.

TRADING BUY

Singapore Land

Kim Eng on 24 Feb 2014

What’s New
SingLand posted 4Q13 core PATMI of SGD51.6m (-19.0% YoY, +4.3% QoQ). Rental income from its office portfolio inched up marginally by 2% QoQ, but Pan Pacific Singapore continued to grow steadily after its reopening in Sep 2012, with hotel gross profit rising 25% QoQ to SGD8.3m. A dividend of SGD 20.0 cts per share has been proposed, in line with previous years.

What’s Our View
We expect rental income from SingLand’s commercial property portfolio to remain largely stable. Income growth from its hotel business may also be capped as the sector continues to face challenges from new hotel room supply, foreign labour restrictions and higher operating costs.

There will also be not much solace from the residential segment. Only five more units have been sold at Mon Jervois since end-Sep 2013, as the project remained 70% unsold. At Alex Residences, demand appeared to have waned after a fairly successful launch last November. The project has 59% of its 429 units still unsold. Given the limited growth prospects in Singapore, SingLand should perhaps make better use of its strong balance sheet to grow overseas. We believe a more active approach to growing its business in China, where it already has a footprint, could make the stock more attractive. Reiterate HOLD with a lower TP of SGD8.20.

Singapore Land Limited

DBS GROUP RESEARCH on 13 March 2013

INCREASING accumulation of Singland shares by its major shareholder UIC in recent months has renewed investor interest and the realisation of the deep embedded value in the company has prompted us to take a deep-dive look at Singland.

We believe it has significant hidden value through its 53.06 per cent stake in unlisted Marina Centre Holdings (MCH), in addition to its large portfolio of 2.1 million sq ft of directly owned, centrally located, and suburban office space.

The group has also increased its land bank and now has 788,364 sq ft of residential gross floor area (GFA) in Singapore, to be developed over the next few years. We anticipate these growth engines to continue to be ramped up in the coming years.

Our see-through look at the value of MCH reveals that there is significant hidden value in its hotels and investment properties that are not reflected in its current book value.

The hotels are carried at cost, which we believe is below current replacement cost, while valuation of the investment properties is conservative. If marked to market, this could add 97 cents to our RNAV for Singland to $13.61.

As one of the largest hotel room owners in the Marina enclave, with 1,880 hotel rooms or about 4 per cent of total stock, there is a scarcity-value premium that can be attached.

In addition, there is more value creation through the redevelopment of the Marina Bayfront office block into an extension of the Marina Square retail space to improve the visibility and frontage of the shopping complex.

In addition, the current 20 per cent valuation disparity between office and retail space would also mean potential for value optimisation through space conversion.

We believe the makeover is timely and would enable the group to benefit from the rejuvenation of the Marina area, in tune with the AEI at Suntec City and completion of South Beach by 2015.

Conservatively, assuming similar valuations for the additional retail space when completed, we reckon the group could recognise a further three cents to RNAV.

We have raised our call to "buy" with an adjusted TP of $9.53, pegged at a 30 per cent discount to RNAV of $13.61.

Share price is currently trading at a 32 per cent discount to book NAV and 38 per cent below our RNAV estimate. We believe the stock continues to offer good value backed by a portfolio of quality assets.

Furthermore, with a lowly geared balance sheet and strong recurrent cash flow from leasing activities, Singland is in a good position to maintain a reasonable dividend yield, currently at 2.4 per cent.

The risk to our view for a potential closing of price gap to RNAV is if the major shareholder does not raise its stake further or if there is no recognition of the underlying value of MCH given its unlisted status.

BUY

Singapore Land Limited

Kim Eng on 6 Aug 2012

Results largely within expectations. Due to the temporary closure of Pan Pacific Singapore hotel for renovation works, SingLand's 2Q12 core PATMI excluding revaluation gains came in at SGD42.4m - down 23% YoY, 24% QoQ. 1H12 core PATMI of SGD97.9m is largely in line with expectations. With the office portfolio remaining fairly resilient, and the acquisition of two more residential sites this year, we upgrade our recommendation to HOLD.

Office income stable. Despite the weak office leasing market, SIngLand's gross rental income remained stable, dipping marginally by just 1% on a QoQ basis to SGD59.1m. The temporary closure of Pan Pacific Hotel has resulted in a SGD7.9m operating loss this quarter, which is likely to continue into 3Q12 as the hotel is expected to reopen in stages only from August.

Trizon may provide some uplift in 2H12. SingLand sold a further 12 units at The Trizon in 2Q12. As the project had already obtained its TOP in May, profits from the sales of the remaining 35 units can now be recognised immediately. The project's ASP has climbed steadily from ~SGD1,300 psf when it was launched in 2009 to ~ SGD1,800 psf now.

Forays to replenish landbank. This year, SingLand has acquired two residential sites from the Government Land Sales Programme. The first is a site at Jervois Road, purchased at SGD118.9m, with an estimated breakeven of SGD1,325 psf. The other is a site off Farrer Road, acquired at SGD113.2m, with an estimated breakeven of SGD1,611 psf. RNAV accretion is however marginal at 5 cts/sh and 3 cts/sh respectively.

Upgrade to HOLD. We raise our target price to SGD5.36, pegged to a 50% discount to RNAV. However, we see very few reasons to turn too bullish in the near-term. HOLD.

Singapore Land

AmFraser Securities on 20 Feb 2012

SINGAPORE Land Ltd reported a 51 per cent plunge in net profit to $331 million for FY2011. Results were below expectaions, meeting 92 per cent of consensus estimates and 85 per cent of our FY2011 forecast.

It was mainly attributable to significantly lower revaluation gain of $126 million in FY2011.

Topline growth of 17 per cent was aided by higher sales recognition of The Trizon in Singapore and increased revenue from Pan Pacific (Pan Pac) hotel. However, negative rental reversions had set in dragging rental income 4 per cent lower.

SingLand sold three units of The Trizon at an average selling price (ASP) of $1,641 per square foot (psf) in Q4 FY2011. Take-up rate stands at 83 per cent. Comparing q-o-q, take-up rate inched only 1 per cent but ASP had reversed with a 3 per cent price gain.

Over the past two months, SingLand had also sold 23 per cent of a residential project - Archipelago along Bedok Reservoir Road at an ASP of $1,117 psf. It is a 50:50 joint venture with UOL Ltd. We are maintaining our ASP assumption of $1,100 psf.

Earnings from hotel operations were 10 per cent higher owing to both higher room and occupancy rates and F&B takings.

Although Mandarin Oriental and Marina Mandarin posted similar gains, associates' results were impacted by lower residential contribution due to completion of One Amber.

According to statistics released by Urban Redevelopment Authority (URA), median office rental rates rose by 8 per cent to $9.51 psf per month (pm) in FY2011. It marked the seventh consecutive quarter of increase.

We reiterate our stance on SingLand's relatively older buildings being sidestepped in favour of newer buildings. SingLand has guided that its renewal lease rates are lower than expired ones and the situation is likely to persist in our opinion. Other older building in Raffles Place such as Equity Plaza is also finding it tough to fill up spaces.

Office solutions provider, Corporate Locations, expects rental rates to soften after peaking in Q3 FY2011. 9.8 million sq ft of new office is scheduled to come on stream in the next four years.

We have revised our RNAV estimate downwards by 4 per cent to $9.59 per share factoring in a 10 per cent fall in rental rates for its office properties. Pegging our fair value at parity to our RNAV estimate, we maintain our 'buy' rating. Its parent, United Industrial Corp Ltd, had continuously accumulated SingLand's shares, albeit at a slower pace in Q4 FY2011, to its current 78.44 per cent holdings.
BUY

Singapore Land

Kim Eng on 20 Feb 2012

Core earnings in line. SingLand reported a 51% fall in its PATMI to $330.7m in FY11. Excluding revaluation gains, PATMI would have shown a 5% YoY increase instead to $214.8m, in line with our expectations. More notably, its investment properties marked a 2.5% downward revaluation from 1H11, making SingLand the first commercial landlord to report a decline in capital values. Maintain Sell as the office sector outlook remains challenging.

Office segment still the bugbear. SingLand’s gross rental income fell by 4% YoY on the back of negative rental reversion. In addition, it suffered a revaluation loss of $114.4m in 2H11 as the value of its investment property portfolio fell by 2.5%. We expect office demand to remain tepid as asking rents slide in 2012, continuing the trend of negative rental reversion. SingLand’s hotel earnings may also take a temporary hit in FY12 as the Pan Pacific Hotel is scheduled to be closed for three months for upgrading works.
Residential sales also challenging. Residential sales accounted for 20% of SingLand’s gross profits in FY11, double that of FY10, as profits from the 83%-sold The Trizon are progressively recognised. However, sales at The Archipelago at Bedok Reservoir, a 50:50 joint venture with UOL, are unimpressive. To date, only 23% of the total 577 units have been sold, possibly because supply in the Bedok Reservoir area has become saturated in recent years.

Jousting for Jervois. Seemingly undeterred by the sales progress of its existing projects, SingLand secured a 0.8ha site at Jervois Road for $118.9m or $880.7 psf ppr, in a tender under the Government Land Sales programme which attracted 18 bids. Located about 800m away from Redhill MRT station, the site can yield around 140 units and we estimate the breakeven at $1,330 psf, with a potential ASP of $1,550 psf for a 14.2% pre-tax margin.

Prospects are not attractive. Given the expected slim margins for its residential developments and the challenging office sector outlook, we maintain our Sell recommendation. We also trim our target price to $4.86, pegged at a 50% discount to its RNAV.