LTC Corp (prev. Lion Teck Chiang)

[freedom]

something to note extract from the AR

Valuation of investment properties
Investment properties are stated at fair value, which has been determined based on valuation at the balance sheet
date. Valuations are performed by accredited independent valuer with recent experience in the location and category
of the properties being valued. The valuation is based on the open market value method.

maybe the industrial properties has been mark-to-market already. 80 million is its market value.

[Musicwhiz]

For such cases, check the fair value gains brought to P&L for such increases in fair value of properties. Basically the entry is as such:-

Dr Investment Property
Cr Fair Value Gain on Property

Note this fair value gain is a one-off event and should be removed from computation of valuation.

It used to be that such revaluation gains were taken to capital reserves in the Balance Sheet, but not any more. I actually preferred the old method as it was much more prudent:-

Dr Investment Property
Cr Asset Revaluation Reserve (Capital Reserve - not distributable for dividends)

[dydx]

maybe the industrial properties has been mark-to-market already. 80 million is its market value.

Yes, the BV of $79.8m (as at 30Jun10) for the freehold Lion Industrial Estate (comprising 4 buildings), located off Paya Lebar Road, is based on professional valuation. However, it does not account for the potential much higher value in the event that the plot of land is re-zoned for alternative uses, e.g. commercial - like for a new shopping mall or a mixed-use development.

[freedom]

maybe the industrial properties has been mark-to-market already. 80 million is its market value.

Yes, the BV of $79.8m (as at 30Jun10) for the freehold Lion Industrial Estate (comprising 4 buildings), located off Paya Lebar Road, is based on professional valuation. However, it does not account for the potential much higher value in the event that the plot of land is re-zoned for alternative uses, e.g. commercial - like for a new shopping mall or a mixed-use development.

but is the potential to be decided by the company or the government?

if by the government, it is just a bet only....

[Musicwhiz]

but is the potential to be decided by the company or the government?

if by the government, it is just a bet only....

From my knowledge, the Govt is one which decides if a certain piece of land is to be re-zoned or shall remain status quo with respect to what can be built on it. All for the good of the country, so to speak....

[D123]

maybe the industrial properties has been mark-to-market already. 80 million is its market value.

Yes, the BV of $79.8m (as at 30Jun10) for the freehold Lion Industrial Estate (comprising 4 buildings), located off Paya Lebar Road, is based on professional valuation. However, it does not account for the potential much higher value in the event that the plot of land is re-zoned for alternative uses, e.g. commercial - like for a new shopping mall or a mixed-use development.

I'm not so sure if there is much value to be unlocked.

Rental income is 3.5mn, let's say the average yearly rental income over a business cycle is 4mn. My estimates of rental yield of industrial buildings range from 6 to 11 percent. Taking the lower estimate of the range, the value of the properties must be about 67mn.

The plot ratio of the land is 2.5, and has been designated as such since URA Master Plan 2003. Plans are updated every 5 years, so the plot ratio will last till 2013. By my own estimates, the approx. lettable area of 27,000 sqm is about 2.0 of the plot. This could be due to the carpark that they built at Building B.

Let's say they redevelop the properties to maximize gross floor area. 27K sqm becomes 33750sqm. The additional space is rented out at current rates and total rental income increases to 5mn. This makes the 80mn valuation more plausible.

This does not take into account the fact that some of the area is being used by LTC themselves, so that office space plus the lettable area, might already add up to a size that maximizes the gross floor area.

So in general, given that the area has been designated an industrial estate, with a plot ratio of 2.5, I don't think there's much more upside to the property valuation.

[dydx]

Since as an investment property the freehold Lion Industrial Estate property/land plot is a non-core asset and has no bearing to Lion Teck Chiang's other 2 on-going businesses of steel trading and residential property development, to unlock its value the property can be simply sold at or close to its current BV (based on professional valuation) of $79.8m. This is equivalent to a cool $0.51/share, based on Lion Teck Chiang's 156.453m outstanding issued shares. To reward shareholders, Lion Teck Chiang could decide to pay out a substantial portion of the proceeds by way of a special dividend or capital reduction. If and when this happens, Mr Market will cheer and bid up the share price towards its NAV/share of $1.009 (as at 30Sep10).

Of course, the above is an easy way-out! To maximize the value of the piece of prime freehold land, anyone would expect Lion Teck Chiang's management and BOD to get it re-zoned for commercial purpose in a major re-development. If successful, the piece of prime freehold land will be worth a lot more than $79.8m!

[valueinvestor]

Since as an investment property the freehold Lion Industrial Estate property/land plot is a non-core asset and has no bearing to Lion Teck Chiang's other 2 on-going businesses of steel trading and residential property development, to unlock its value the property can be simply sold at or close to its current BV (based on professional valuation) of $79.8m. This is equivalent to a cool $0.51/share, based on Lion Teck Chiang's 156.453m outstanding issued shares. To reward shareholders, Lion Teck Chiang could decide to pay out a substantial portion of the proceeds by way of a special dividend or capital reduction. If and when this happens, Mr Market will cheer and bid up the share price towards its NAV/share of $1.009 (as at 30Sep10).

Of course, the above is an easy way-out! To maximize the value of the piece of prime freehold land, anyone would expect Lion Teck Chiang's management and BOD to get it re-zoned for commercial purpose in a major re-development. If successful, the piece of prime freehold land will be worth a lot more than $79.8m!

After selling the buildings, LCT will no longer have the rental income and the proceeds from the sales will have to pay back some loans, so it will be very much lesser than the 0.51/share.

[dydx]

After selling the buildings, LCT will no longer have the rental income and the proceeds from the sales will have to pay back some loans, so it will be very much lesser than the 0.51/share.

Sure, but my main point is that at the last done share price of $0.51, Mr Market is giving away for FREE (1) the nett assets of the steel trading and residential property development businesses and their future earnings, and (2) any further upside gain from the sale or re-development of the freehold Lion Industrial Estate property/land plot.

Based on the latest 30Sep10 group B/S with the approx. $25.5m nett debt level and the remaining assets of the steel trading and residential property development businesses.....
http://info.sgx.com/webcoranncatth.nsf/V...90028A218/$file/LTC_First_Qtr_Results_Ann300910.pdf?openelement
, LCT can quite easily carry its present borrowings without the use of the freehold Lion Industrial Estate property/land plot as collateral. So conceivably, LTC could simply pay out substantially the sales proceeds of say $79.8m to its shareholders, if the freehold Lion Industrial Estate property/land plot is sold for cash.

[Satchmo]

It used to be that such revaluation gains were taken to capital reserves in the Balance Sheet, but not any more. I actually preferred the old method as it was much more prudent:-

Dr Investment Property
Cr Asset Revaluation Reserve (Capital Reserve - not distributable for dividends)

I thought that still applies? Increase in fair value increases the P/L under 'other comprehensive income' and also in the B/S under 'revaluation surplus', which is under equity/capital.