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OUE Limited: A nibble.

Monday, October 13, 2014

On 25 September, I wondered in a blog post if I might be given a chance to pay 50c for what was worth a dollar. I am referring to OUE Limited's stock, of course.

Twin Peaks.

Although already trading at a hefty discount to NAV back then, I was concerned about how its luxury condominium project, Twin Peaks, could be a drag on performance. Also, looking at the charts then, selling pressure showed no sign of weakening. So, I decided to wait.

Today, I became a shareholder of OUE Limited as my overnight buy order at $2.01 a share was filled.

As the NAV/share is $4.04, I have paid 50c for what is worth a dollar. My wish came true.

It is a very small long position as sentiments are still very bearish and if the $2.00 psychological support should give way, we could see lower prices.

Could we see $1.96 or even $1.92? It could happen but it might not. If it should happen, I suspect that it could be a slow slide downwards. So, I am not going to be too hasty or "show hand" as some readers would say.

If the stock should be well supported and if the support at $2.00 should hold, then, I could add more to my long position if a reversal should take place.

Related post:
OUE Limited: An asset play that could be cheaper?


AK71 said...

Hi Capricon,

Yes, this is based on TA and nothing else. ;)

Vincent said...

You seems to be on a buying spree lately AK. Buying when there's blood in the street?

AK71 said...

Hi Vincent,

I am not sure if there is blood in the streets but there is plenty of anxiety in the air and quite a bit of complaining. LOL.

I am just nibbling here and there. Definitely not a shopping spree. ;)

KC said...

Don't anyhow nibble unless your war chest is as deep and full as AK's.

AK71 said...

Hi E H,

Thanks for the timely reminder. I will have to bear in mind not to anyhow nibble. -.-"

Steven said...

Hi AK,
UOE's price looks like a good bargain against the NAV, but what about the debt levels it has? Any concerns on the impact of the raising interests?

Best Regards,

AK71 said...

Hi Steven,

With a net gearing level of 37%, it is not much higher levered compared to some REITs.

I believe that OUE Limited will recycle capital by selling more properties to OUE H-Trust and OUE C-REIT. This will likely reduce its gearing level then.

With AEIs completing in the next 18 to 24 months, OUE Limited's cash flow from operations will also improve. Interest cover will improve as a result.

So, looking into the future, I think OUE Limited has the ability to deal with moderately rising interest rates expected to happen from mid 2015.

I am more concerned about its luxury condo development, Twin Peaks, which is still only 20% sold and near completion.

Betta man said...

Vard holdings crashed to historical low of $0.64 at the point of writing. Would you be nibbling ?

Unknown said...

Hi AK:)

Thank you very much for sharing your thoughts. I think Ebola is the 'black swan' and events are blowing up. I am biting my lips and locking up my banking tokens (to stop that urge to buy stocks).

Last nite, I watched Foxnews and it reported on the UN worker (a Sudanese doctor) who died in Liepzig, Germany.

Liepzig authorities said that the man was cremated even though he is a Muslim. Ebola can remain infectious for weeks, so a normal burial is impossible.

The patient was kept in an isolation ward equipped with negative-pressure rooms that are hermetically sealed and can only be accessed through airlocks.

At least six staff cared for the man around the clock, going through as many as 30 pairs of surgical gloves an hour and up to 100 protective suits a day, Minde said.

Kind Regards.

AK71 said...

Hi betta man,

Since divesting my investment in Vard for a small gain many moons ago, I have not looked at it.

I took a look just now and my jaw dropped. That big black candle on the back of ultra high volume looks really scary. I will need dentures made of titanium to dare take a nibble. -.-"

In such situations, we could see a short term rebound from oversold conditions but chances of continuing selling cannot be discounted. In fact, it looks like it could happen.

Too dusty now. Need to wait for the dust to settle. -.-"

AK71 said...

"Vard has been facing problems with its Brazilian yard for some time now. In particular, start up costs have over run for the past few quarters at its Brazilian yards, NiterĂ³i. and Promar. Things seemed to have improved recently particularly for Promar. However, with this latest announcement, it seems both yards have not been spared margin pressures.

"Cost overruns seem to have spread to its European yards as well. In its latest announcement, Vard said that it “has revised its estimates for a limited number of projects in its European order book where cost overruns were incurred”. Despite this, Vard mentioned that no impacts on its delivery schedule were expected.

"The tax claim from Brazil that was announced in August will attract not provisions in Vard’s financial accounts. Previously, analysts had expected Vard to make provisions for the tax claim if the company felt that the Brazilian government had grounds for those tax claims.

"Best to avoid Vard as you would avoid travelling to any West African country, at least for the time being..."


AK71 said...

Hi Dorshii,

Sounds like great material for a horror movie of epic proportion! -.-"

Let us pray that the situation will be under control soon. I still remember how bad SARS was for Singapore. :(

Unknown said...

Hi AK71:)

I think it will get a lot worse before it gets better. All the major US networks are covering Ebola continually for the last few days. FEAR is at their door-steps. US was spared SARS, which has a lower mortality rate.

The current Ebola is of the Zaire strain, which has a upper mortality rate of 90%.. Having regard to the contest between Federal oversight and local community powers, plus the fear of humongous legal suits in the offing, the Obama administration has a very serious crisis in its hands.

I cannot see light at the end of the tunnel. Not yet.

May 'rich' opportunities lie before you and like-minded investors soon.

AK71 said...

Hi dorshii,

Actually, I pray for the situation to come under control soon.

Although I agree that the best time to buy assets is when there is blood in the streets, I rather that the world be spared the terrors of the Ebola.

I don't know what is going to happen in the near future but I will just have to stick to my plan and act accordingly.

AK71 said...

OUE Hospitality Trust (OUE H-Trust), which owns Mandarin Orchard Singapore and the adjoining Mandarin Gallery, will buy Crowne Plaza Changi Airport and the Crowne Plaza Changi Airport Extension for a total of S$495 million.

It said on Friday (Nov 28) that conditional agreements have been made to acquire Crowne Plaza Changi Airport for S$290 million, as well as the extension for another S$205 million once the latter is completed.

The seller of the properties is OUE Airport Hotel Pte Ltd - a subsidiary of OUE Ltd, which is the sponsor of OUE H-Trust.


Musicwhiz said...

How reliable is RNAV in determining margin of safety when investing in real estate companies? Thanks.

AK71 said...

Hi MW,

Good to see you. :)

$4.04 is the NAV/share and not the RNAV, I believe, although some of OUE's properties could be worth more than what is recorded in the books.

Musicwhiz said...

Hi AK71,

Oh, I had thought that if a Company had properties, they should be valued at revalued amounts (i.e. at market value)? If not, why are they still recorded at historical cost on the Balance Sheet?

If the property has been revalued, then the $4.04 would be the RNAV and not the NAV. So I am a little confused as to which it is. Thanks!


AK71 said...

Hi MW,

I believe that Crowne Plaza Changi Airport is valued at cost in their books. Of course, with the planned divestment, there will be a fair value gain. I read this somewhere but I cannot remember exactly where now.

You are the expert in accounting, not me. So, I would appreciate any enlightening comment from you in this area, if you should have some time to look at their financial statements. Thanks in advance. :)

AK71 said...

During the year under review, the Group's hospitality division registered revenue of S$210.6 million as compared to S$229.6 million in previous year. The decreased of 8.2% was due mainly to the absence of contributions from two disposed China hotels.

Revenue generated from the Group's property investment division increased by S$19.6 million to S$157.8 million after the inclusion of revenue from Lippo Plaza property in Shanghai and the U.S. Bank Tower in Los Angeles.

The Group's sole residential development, OUE Twin Peaks, contributed S$38.3 million to the property development income in FY2014. The 39.0% decrease year-on-year is due mainly to the lower sales during the financial year as a result of the lacklustre residential property market in Singapore.

The Group ended the year with a strong balance sheet where net gearing fell to 43.9% from previous 57.2%, on the back of the repayment of S$300.0 million fixed rate notes in April 2014 and NAV per share is at S$4.23.

Looking ahead, the Group will focus on active lease management and ongoing asset enhancement activities to enhance the recurring income from its portfolio of investment properties.

Asset enhancement at the U.S. Bank Tower's observation deck and restaurant is underway, with both projects targeted for completion in mid-2015. As at 31 December 2014, U.S. Bank Tower has achieved new or renewed leases amounting to about 650,000 square feet since acquisition and has a committed occupancy of 79.6%.

Refurbishment work at OUE Downtown is progressing well and should be completed by 2016. The refurbishment will transform OUE Downtown's existing podium into a five-storey retail mall featuring a unique selection of retail and dining options, as well as a supermarket to cater to the lifestyle needs of residents and workers in the area.

The divestment of Crowne Plaza Changi Airport Hotel to OUE Hospitality Trust was completed on 30 January 2015. This is in line with OUE's strategy to unlock the value of its asset portfolio and recycle capital to pursue new growth opportunities and grow its fund management business. The divestment of the 10-storey extension to Crowne Plaza Changi Airport will take place after its construction is completed and temporary occupation permit has been obtained. The construction of the extension is expected to be completed by end of 2015 but not later than June 2016.

"Our asset enhancement activities in the past have borne fruit and contributed to long-term shareholder value. Moving forward, we will continue to drive this strategy, while at the same time, look out for opportunities which will facilitate and strengthen our recurrent income base," said Dr Stephen Riady, Executive Chairman of OUE Limited.


AK71 said...

"OUE Commercial Reit (OUE C-Reit) is acquiring a majority stake in mixed-use development One Raffles Place from its sponsor OUE Limited for S$1-1.1 billion at an estimated S$2,382 per square foot (psf) of net lettable area."


Gary said...

This should be good news for OUE Limited

AK71 said...

Hi Gary,

With its stock trading at such a big discount to NAV, one way to realise value for OUE Limited is to keep selling its properties to OUE C-REIT and OUE H-Trust. ;)

I was quite happy to add more to my long position when the stock retested $2.01 a share recently. :)

AK71 said...

"The group remains focused on asset enhancement initiatives and active lease management at OUE Downtown and US Bank Tower, which has achieved committed occupancy rates of 89.7% and 79.6%, respectively. The 10-storey extension (CPEX) to Crowne Plaza Changi Airport is expected to be completed by end of 2015 (and no later than June 2016) and will add 243 guestrooms to the development for a total of 563 rooms. Management has indicated that the extension will be subsequently divested to OUE H-REIT in line with the group’s capital recycling strategy. Finally, while the domestic high-end residential segment remains subdued, OUE will seek to drive sales at its OUE Twin Peaks project. As at end 1Q15, the group continues to enjoy a firm balance sheet with a net gearing of 40.9% and S$265.2m in cash."

OCBC Investment Research

AK71 said...

From Solace:

"Believe ppl who miss OUE at $2.01 recently would have noticed the stock slipping $1.94 recently. Despite many asset recycle exercise through the listing of two REITs, and continue injection of property into the REITs, mr market has not been too excited about them.... I see the move by OUE to be very positive and find the stock to be getting more and more undervalued.. But does mr market knows Sth that I don't know? That it keep on pricing it lower. Rationality of market is something that can be hard to fathom."

From AK:

"It could be a case of fat fingers. ;p I cannot see any reason for the last minute sell down... If we look at the time it happened... It must be either an error or a substantial shareholder selling. The burr in the sides of OUE Limited now is Twin Peaks but OUE Limited is much more than Twin Peaks. At $1.94 a share, it is like writing off more than half of OUE Limited's assets as being worth next to nothing."

AK71 said...

OUE Limited swung into the red in the second quarter ended June 30, 2015, with a net loss of S$16.28 million against a net profit of S$4.43 million a year ago, owing to S$20.5 million of losses mainly arising from the fair value of its investment in a mutual fund.

But OUE stressed that these fair-value losses are non-cash items.

Excluding these losses, the group's business and operations continue to contribute attributable profits of S$4.3 million during the quarter, compared to S$4.8 million a year ago.

The group's second-quarter revenue contracted 4.5 per cent to S$95.66 million, dragged down by lower contribution from its hospitality division as well as condo project OUE Twin Peaks that received temporary occupation permit in February. This was mitigated by better performance by the property investment division, which saw higher occupancy at US Bank Tower in Los Angeles.

The directors have proposed an interim tax-exempt dividend of one Singapore cent per share and a special tax-exempt dividend of three Singapore cents per share.


wx said...

Thanks AK for the update! The fair-value losses hopefully will not be recurring. Did not realise OUE was dabbling with equities.

Anyway, results for Accordia Golf Trust is out too! Mr Market seems to like the results with a small jump in price yesterday.

AK71 said...

Hi Wei Xiong,

It is hard to say what will happen in the future but OUE Limited's stock is dreadfully undervalued. No matter how we slice it, unless we think that all their assets are going to take a 50% impairment, there is no reason for the stock to trade at such low prices. I am looking to accumulate on further weakness.

As for Accordia Golf Trust, I believe Mr. Market is overly pessimistic. I feel that even with the slight bounce in the unit price recently, Accordia Golf Trust is still a pretty good investment for income for the next few years. :)

AB said...

Hi AK,

You've mentioned about the company unlocking its value. What are the ways they could be doing it, should they do so?

1. Privatise i.e. delist
2. Returning value via lump sum dividends
3. or ???

It looks very undervalued but dividends are low.

AK71 said...

Hi AB,

There are ways value could be unlocked but how are they going to do it? Your guess is as good as mine. I see OUE Limited selling their assets to OUE C-REIT and OUE Hospitality Trust as ways of unlocking value for OUE Limited's shareholders. I would like to see more dividends declared in future. :)

Investing in OUE Limited and waiting for possibly better outcomes require much patience. :)

AK71 said...

My reply to a reader's email today:

Hi Ryan,

"Actually, if we were to factor in the debt on their book, which does not
get reduced alongside the impairment, then a far smaller impairment would
bring the stock down to 1.0 P/B."

Very good observation on OUE.

Thanks for sharing. Appreciate it. :)

Best wishes,

AK71 said...

BUY order for OUE Limited filled at $1.71 a share.

Roaming fighter said...

Hi Ak,
Congrat, OUE paying div of $0.12
Long wait for this special div when they begin to unlock value by selling assets.
Next will be the banking tower in US.

AK71 said...

Hi RF,

I believe that OUE is very undervalued and that patience will be rewarded.

Crossing fingers. ;)

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