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Posts Tagged ‘Keppel Land’

Higher standards expected from BTimes and a Temask-linked group?

In Corporate governance, Media, Temasek on 24/11/2011 at 5:49 am

Recently, K-Reit Asia succeeded in getting unitholder approval for its plan to buy 87.5%  of Ocean Financial Centre (OFC), a prime Grade A Raffles Place office building, and raise some S$976 million through a rights issue (17 for 20) to fund part of the cost. It needs S$1.57 billion to buy from parent company Keppel Land a 99- year lease of the OFC office building. KepLand will see a net gain of about S$492.7 million from the sale. Meanwhile despite the massive rights issue, K-Reit will have leverage of around 42% by end of 2011, more than the Reit sector average of 36%. This at a time of a looming slow down.

Some unitholders questioned

– the price and timing of the deal what with a recession looming;

– that while the building in Raffles Place has a tenure of 999 years with 850 years remaining on the lease, but KepLand is only selling a 99-year lease;

– why K-Reit is paying its manager (which is owned by KepLand) an acquisition fee, though it is buying the asset from its parent company;

– the independence of the manager.

But dissenting unitholders have to accept much of the blame in allowing K-Reit an easy ride at the EGM when resolutions were passed with a show of hands. The chairman of K-Reit rejected a call to call for a poll at the EGM presumably because there was no five-member call for a poll or a request by unitholders controlling 10% voting rights. 

If dissenting unitholders are not prepared to stand up and be counted, they deserve to be bullied.

Business Times decided to raise a stinker, “This isn’t the first time – and probably it won’t be the last – that issues like these arise at a Reit. For some time now there has been growing disquiet among corporate watchers about weaknesses in the corporate governance structures in Singapore Reits where the Reit sponsor wholly owns the Reit manager, and also holds a large stake in the Reit.” Well BT should remember that there is a bear market, and issues abt corporate governance always rise when investors lose money.

“[C]ases of sponsors selling properties to Reits have raised concerns about conflict of interest, and unitholders have often questioned the purchase of these assets and how they were priced”. BT does not point out that

– it is public knowledge that here the Reit sponsor wholly owns the Reit manager, and also holds a large stake in the Reit; and

 — in the K-Reit deal and other deals involving possible conflict of interests, the selling unitholder has by law to abstain from voting; and

– there have to be independent valuations.  

“There is also the need to have more transparent structures to pay Reit managers and to tie these more closely to performance”, according to BT. It’s not as though these are hidden from investors or made retrospective. They are publicly available info.

Sorry BT. A piece of rubbish.  

Having said all this, a Temasek-linked group like Keppel should set an example for others to follow. At the very least, K-Reit should have allowed a poll on the resolutions, rather than a show of hands. After all, the law is likely to be changed to make polls mandatory at general meetings. “Justice must not only be done, but seen to be done” and “Caesar’s wife must be above suspicion”.

And K-Reit chairman Tsui Kai Chong’s comment that “Our father organisation, Keppel Land, is only willing to sell it to us for 99 years”, tells me that, at the very least, he has an “attitude” problem: deferring to his KepLand where  he is an independent director.

DBS bullish on KepLand and UOL

In Economy, Property, Reits on 07/09/2011 at 7:22 am

We believe stocks are currently priced for a slowdown but not a recession. Our strategy would be to adopt a stock picking strategy in the property sector. Within the office segment, office landlords are trading in excess of -1 standard deviation to historical RNAV discount while S-Reits are trading at less than 1 SD to the long-term yield.

We believe office stocks have more than priced in the muted outlook and valuations appear attractive currently. While we have widened target price (TP) discounts and lowered TP for landlords given the higher risks going forward, upside to our TP remains significant.

Our top picks remains Keppel Land and UOL. Keppel Land is currently trading at 46 per cent discount to RNAV of $5.57 and offers 40 per cent upside to our lowered TP of $4.18.

We remain positive on UOL, thanks to its multiple growth engines that spans commercial, residential as well as hospitality. Our TP of $4.96, based on a wider 20 per cent discount, offers 9 per cent upside. We have lowered our call on Singland to Hold due to its large 75 to 80 per cent exposure to the office sector.

Property: What weed are these people smoking?

In Property on 22/08/2011 at 2:05 pm

I am amazed that any broker can call the Singapore real estate sector “Overweight”. But RBS did it on 16 August 2011

The valuation gap between developer stocks and physical properties widened over the past eight months. We expect it to narrow as home sales remain robust. Strong household and developer balance sheets should support prices and cooling measures may prove ineffective in quelling real demand. We upgrade our view on the sector to ‘overweight’ from ‘neutral’.

Developer stocks’ premium to NAV narrowed to just 4 per cent from 33 per cent in January, despite robust primary home sales of 11,197 units (up 13 per cent year on year) in the first seven months of 2011 and a 4.3 per cent half-on-half increase in home prices in H1 2011. The sector also underperformed the STI by 11 percentage points in the last eight months. Policy risks seem as low now in view of heightened global uncertainty. We think any policies to cool the market would prove ineffective as we believe there is virtually no speculation now. We expect mass-market homes to continue to be undersupplied in 2012 to 2013.

Growth in total stock averages 2.3 per cent a year from 2011-12, below the long-term average of 3 per cent, while occupancy rate is at 98 per cent. Hence, we expect the healthy churn of mass properties to persist. We stress-tested the household balance sheet and found that a 30 per cent drop in home prices would bring the debt-to-asset ratio to 18.6 per cent, slightly higher than the long-term average of 18 per cent but below the high of 21 per cent in the 1997 and 2001 booms.

Gearing of larger developers is low at 34 per cent vs 41 per cent during the pre-crisis level of 2008 while that of smaller players halved to 103 per cent. Given their low land bank, developers will not cut prices even if there is a recession, in our view.

RBS expects the economy to grow 6 per cent in 2010 and 5 per cent in 2012. We expect an equilibrium in the office sector, in the light of higher visibility of supply and likely slower demand. Hence, we moderate our office rental growth assumptions to 5 per cent in both 2011 and 2012.

Overall, retail rents may soften in view of an oversupply but quality malls owned by seasoned operators should continue to do well. We like hotels on a structural growth story in Singapore tourism. Capital values of commercial assets should also hold up in view of persistently low rates.

We are most positive on City Developments, which we believe could benefit from a lifting of policy risks and continued strength in the residential market. Hence, we upgrade the stock from a ‘hold’ to ‘buy’, for its large exposure to the residential sector which accounts for 39 per cent of its RNAV.

We maintain our ‘buy’ ratings on Keppel Land, OUE and UOL as these commercial stocks look undervalued, trading at 30 to 50 per cent discount to RNAV. We maintain our ‘hold’ rating on CapitaLand as we believe that the stock may lag in stock price performance in view of its complex shareholding structure.

CIMB on property sector

In Property on 20/07/2011 at 9:59 am

We remain ‘neutral’ on the sector, remaining negative on residential and positive on the commercial/hospitality segments.

Our top picks are Keppel Land (‘overweight’, TP: $4.73); Fraser and Neave (‘overweight’, TP: $7.34); and CapitaLand (‘overweight’, TP: $3.62).

Hard to argue with the bearish stance on residential and bullish on retail and commercial.

Why my “obsession” with TLCs in China

In China, Investments, Temasek on 09/02/2010 at 5:12 am

No, I’m not a member or covert supporter of Dr Chee’s SDP, always looking to run-down S’pore.

I try to be a “special situations” investor: looking for situations where the conventional wisdom is wrong. At present, the conventional wisdom on China is “Short-term bear, long-term bull”. So CapitaLand is punished by the market for their US$2.2 billion deal while, the seller, OOIL’s share price is stable in a weak market.

But CapitaLand and DBS already big in China, want to be bigger: and KepLand are rumoured to be thinking of doing a big( S$186 million) property deal. Temasek have big direct investments too. They are big investors in several private equity funds and have big holdings in two Chinese banks: 4% of Bank of China and 6% of China Construction Bank*.

They are going against the consensus view that the least one can do is to be cautious in China.

If the listed TLCs get China right, they could be 20-baggers.  Hence my interest in whether they are right. As for Temasek getting it right, Temasek, as its CEO says, belongs to us S’poreans.

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Additional tots — 15 Feb 2010

But what are the odds of them getting it right?

Adam Smith (the economist. not the great US financial commentator of the 80s) wrote, “the chance of gain is by every man more or less overvalued”.

This more or less explains why great investors (defined here to include traders) like Buffett, Soros, Paul Johnson, Jim Rogers, Peter Lynch, Anthony Bolton and the old Kuwait Investment Office are so rare. They are better at judging the odds of getting things right.

And why the smart people in Temasek and GIC make mistakes. They are just like the other ordinary smart people managing money in SWFs, endowments, collective funds, pension funds, insurance companies and other institutional investors.

And why the smart people in CapLand and KepLand could be wrong. They could be like the smart managers in Time Warner that decided to merge Time Warner with AOL, or the managers at Sembcorp when they decided to go into property and Delifrance.

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Incidentally, a BBC Online article examines what is driving the  Chinese property market:

Demand for housing

Louis Kuijs, an economist at the World Bank in Beijing, says China still needed more houses, despite several years of fast-paced building, “In a rapidly growing country like China that still has a low stock of housing, there is a fundamental demand for new homes.”

Developers looking for sites

“In Beijing the search is still on for new sites for development.”

People still buying hses as an investment

One man  says he has accepted an offer to relocate. He already has two apartments in Beijing and he is going to use the compensation to buy a third.

Full BBC online article

CapLand (and KeplLand?) could be right abt China.

*’We work really closely with Sasac, the state-owned enterprise regulator in China, and there are literally trillions and trillions of renminbi of frankly defaulting loans already in China that no one is doing anything about,’

Neil McDonald, a Hong Kong-based business restructuring and insolvency partner with Lovells LLP, said at an Asia-Pacific Loan Market Association conference last week. ‘At some point, there’s going to be a reckoning for that.’ — quote from BT.


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