Stamford Land, Heeton: asset sales

Previously, on a thread on Q2 stock picks, I had highlighted 2 counters with proposed or impending big asset sales (relative to their mkt cap): St Land and Heeton. Before I update news on these companies, here was what was written on the other thread:

"I pick these 2 stocks for the common reason that both companies are reported to be in the process of selling some of their assets, which could lead to substantial cash flow, some of which could be dished out as dividends:

1. Heeton reported to be looking to sell its 50% stake in Sun Plaza. Sale price is estimated to be at least $300m, so Heetonâ's share is $150m. Also, co has sold its wet market operations, and about $23m cash flow from this will come in this quarter. Hence, cash flow from these 2 sales: $173m. Number of shares: 223.846m, ie, cash flow per share: 77.27cts. Share price now: 49cts. RNAV per share, according to my estimate is $1.20 (recent Westcomb report says $1.16).

Co does have outstanding loans, but part of the loans is for land purchases and construction of condos which will be repaid as the units are sold and construction progresses. I reckon the portion of the cash flow not needed to repay loans could still be quite substantial, perhaps in the region of 20-30cts per share. Other catalyst: successful sale of its condo projects (Lumos, Iliv@Grange and Mitre hotel site).

2. Stamford Land looking to sell its Perth office block for more than A$140m, according to recent Lim & Tan report. Cash flow from a successful sale could work out to about 20.7cts per share. There will also be another $20+m inflow from the sale of its Pasir Panjang warehouse, adding another 2.3cts per share. Total cash flow: $23cts. Ow Cho Kiat is well known for divesting assets in his other SGX listed company, Sp Ship, and then distributing bulk of the cash to shareholders. He could do the same for Stamdford Land. Note also that depending on how much one values St Land's chain of hotels in Australia/NZ, RNAV per share could be as high as $1.10-1.30.

Other catalysts: profit from Sydney apartments in FY 2011 (profit recognized only on completion, so it will be a lump sum) and sale of its hotels (this is the big one. Co had an unsolicited offer 2-3 years ago). Whether these stocks will rise this quarter or later will depend on when the 2 companies officially launch their assets for sales and whether the sales will be successful. The good thing is that both companies have rather high RNAV to support their share prices. The risk: on the charts (across the board), we are no more in good trending/very safe zones.

St Land reported yesterday that construction of its Dynons Plaza office building in Perth has completed and it has enlisted an agent, Savills, to market it worldwide for sale, through an Expression of Interest that will close on 21 May 2010.

Quote from Savills: "We are expecting a transaction price well in excess of A$140m, going by current market benchmarks. Dynons Plaza commands an annual net income of approximately A$9.78m, with an attractive rent review structure that provides for annual fixed increases.

"Given the huge new wave of resources projects and supporting infrastructure fuelling Western Australia's growth prospects, and in particular the predicted growth outlook for WA by major economic researchers, Perth is emerging as a buy for more and more domestic and international investors, who are displaying a renewed appetite for acquisitions.

"The sale of the Dynons Plaza should represent one of the largest ever commercial property transactions in the Perth CBD."

"It's Grade-A quality, underpinned by the quality Chevron lease and the resurgent resources sector in Western Australia, Dynons Plaza is expected to set a new benchmark for Perth CBD sales."

Some notes on the proposed sale of Heeton's Sun Plaza and St Land's Dynons Plaza. Heeton's Sun Plaza's EOI (Expression of Interest) closed on 12 April, and was supposed to be followed by an open tender.

However, negotiations could still be going on, and hence no open tender has been called for. Sale of shopping malls are hard to come by, and REITs could be interested. The mall's rental value could also be enhanced by the moving of the existing library to a higher floor. Hopefully the next announcement could be that of a deal being sealed.

If a sale price of $300m is achieved for the mall, the cash flow for Heeton would be 67cts per share.

St Land's Dynons Plaza in Perth was launched internationally by Savills in an EOI that will close on 21 May. Here is a youtube of Savills' ad on Dynons Plaza:



Meanwhile, as I feared, this is a difficult quarter to pick winning stocks. However, these Heeton and St Land have high RNAV of about $1.20-$1.30 each to support their share price, as well as their common situational factor of selling substantial assets.

Safety of high underlying asset value and substantial cash inflows should make them relative outperformers in a difficult market. Incidentally, Koh Bros is a cheaper (in terms of share price quantum) exposure to the Sun Plaza sale, as it owns the other 50% of the mall. However, it's slightly less colorful than Heeton, which has other interesting angles like the high-profile iLiv@Grange (now 100% owned after JP Morgan sold out to Heeton) and undervaluation of its assets like El Centro apartments in Tanjong Pagar.

Koh Bro's share price discount to RNAV is also quite substantial, at about 50% at current price, and its also exposed to the highly lucrative Lumos (JV with Heeton).

Heeton Q1 results were announced yesterday. Net profit was $6.7m, compared with last year's $1.6m, the rise coming mainly from profit from the sale of wet markets ($4.7m). Co made no announcement on the sale of Sun Plaza, and hopefully that is a sign it is in a sensitive negotiation stage.

Heeton's NTA of 87.8cts and a RNAV of about $1.20-1.30 should continue to lend some support to its share price in a weak stock market and a luxury property market that is showing less life than it was earlier expected. However, the possible sale of Sun Plaza is the more important and immediate factor for this stock.

St Land announced last Thursday evening that net profit for FY ended 31 March 10 rose 500% to $24.5m. EPS was 2.84cts, up from 0.47cts. NTA is now 51cts, due mainly to the stronger A$ and NZ$ compared to Sing $. Co also declared a DPS of 2cts. The good results and dividend payout probably explain the rise of St Land’s share price today. The stock has been a relative outperformer in this weak market, due mainly to its high RNAV of more than $1 and the possible sale of its commercial block in Perth. However, the EOI has ended on 21 May 10 and to date, there is no announcement of a deal.

sumer, it\'s a crime for the market to let a good stock rot at half its RNAV. can u educate me a bit tho? why is the NTA 51 c but the RNAV is $1.20 or so? i thought property companies are all tangible assets, ie, no goodwill and other intangible assets.