Far East Orchard Limited aka Orchard Parade Holding

[ngcheeki]

Another undervalue stock in action today. Hopefully, with the acquisition of the medical suites and hospitality management business, the company's valuation and cash flow will be improved as compared to property company!!

vested.

http://info.sgx.com/webcoranncatth.nsf/V...B005AEA54/$file/OPHL_Proposed_restructuring.pdf?openelement

L&T Research on OPH
ORCHARD PARADE S$1.625-OPHS.SI
- The long awaited reit-ization has finally arrived, with
the setting up of Far East Hospitality Trust
(FEHT).
- Last query by SGX was on March 5th following the
share price increase on such speculation: OPH rose
as much as 14 cents to $1.81 before closing at $1.73
on that day.
- Bottomline is shareholders of OPH will receive for
every 1000 shares, special dividend of 12 cents
and in-specie-distribution of 0.229 Yeo Hiap
Seng shares (worth 29.3 cents at last traded price
of $1.28 / 41.2 cents based on the proposed
transacted price of $1.80 per YHS share. YHS shares
are thinly traded.
- In essence:
a. OPH will inject Orchard Parade Hotel (50-year leasehold), Albert Court Village Hotel (75 years) and Central Sq Village Residences
(80 years) into FEHT for $702 mln (formula for
the determination of sale consideration to be
announced later).
b. OPH acquires from Far East Organization, 33%
stake each in the Reit Manager and the Trustee
Manager; and 45 units of medical suites in Novena
Medical Centre and 48 units of mediacl suites in
Novena Specialist Centre.
c. As consideration, OPH will divest 35% of its 49.5%
stake in YHS at $1.80 a share, which represents a
40.6% premium to YHS last traded price.
d. OPH’s NAV would be 21 cents higher at $3.18
per share post transactions, but before the
special payouts.
- OPH will change its name to Far East Orchard.
- All of the above, except for the acquisition of stakes in
the Reit Manager and Trustee Manager, will be
conditional on the FEHT IPO going through.
- We have not recommended OPH shares previously.
Suffice it to say that the stock will no doubt react
favorably.

[money]

Another undervalue stock in action today. Hopefully, with the acquisition of the medical suites and hospitality management business, the company's valuation and cash flow will be improved as compared to property company!!

vested.

http://info.sgx.com/webcoranncatth.nsf/V...B005AEA54/$file/OPHL_Proposed_restructuring.pdf?openelement

L&T Research on OPH
ORCHARD PARADE S$1.625-OPHS.SI
- The long awaited reit-ization has finally arrived, with
the setting up of Far East Hospitality Trust
(FEHT).
- Last query by SGX was on March 5th following the
share price increase on such speculation: OPH rose
as much as 14 cents to $1.81 before closing at $1.73
on that day.
- Bottomline is shareholders of OPH will receive for
every 1000 shares, special dividend of 12 cents
and in-specie-distribution of 0.229 Yeo Hiap
Seng shares (worth 29.3 cents at last traded price
of $1.28 / 41.2 cents based on the proposed
transacted price of $1.80 per YHS share. YHS shares
are thinly traded.
- In essence:
a. OPH will inject Orchard Parade Hotel (50-year leasehold), Albert Court Village Hotel (75 years) and Central Sq Village Residences
(80 years) into FEHT for $702 mln (formula for
the determination of sale consideration to be
announced later).
b. OPH acquires from Far East Organization, 33%
stake each in the Reit Manager and the Trustee
Manager; and 45 units of medical suites in Novena
Medical Centre and 48 units of mediacl suites in
Novena Specialist Centre.
c. As consideration, OPH will divest 35% of its 49.5%
stake in YHS at $1.80 a share, which represents a
40.6% premium to YHS last traded price.
d. OPH’s NAV would be 21 cents higher at $3.18
per share post transactions, but before the
special payouts.
- OPH will change its name to Far East Orchard.
- All of the above, except for the acquisition of stakes in
the Reit Manager and Trustee Manager, will be
conditional on the FEHT IPO going through.
- We have not recommended OPH shares previously.
Suffice it to say that the stock will no doubt react
favorably.

I have mixed feelings in regards to this deal.

If OPHL can successfully do a REIT listing, it will indeed unlock value. The 3 assets sold generated 27m in profits for FY2011, they are sold for 702m (page 11 in the attachment below). but the problem here is it takes great optimism to sell at such a high price. Will you buy into such a reit with p/e around 26, i wouldnt. Moreover, the properties are not freehold.

Which cornerstone investor will buy into such a reit, i m quite skeptical.

OPHL is also acquiring the healthcare and hospitality business from Far East at a cost of 420m with profits of only 8.8m (p/e almost 50). (page 15 of attachment). Nonetheless, the 420m is paid for using the shares of yeoHS at a premium and a small 58m in cash. Is it a good deal? I am not very sure but i dont think it is at a good price, at best, a fair price for a good business (assuming it is a good business).

At the current price of $1.84, i would consider buying OPH if the reit listing is a 100% deal, otherwise, i still find OPHL too risky.

http://info.sgx.com/webcoranncatth.nsf/V...B005AEA54/$file/OPHL_Proposed_restructuring.pdf?openelement

[bluechipstamp]

The 3 assets sold generated 27m in profits for FY2011, they are sold for 702m (page 11 in the attachment below). but the problem here is it takes great optimism to sell at such a high price. Will you buy into such a reit with p/e around 26, i wouldnt. Moreover, the properties are not freehold.

Actually, Orchard Parade Hotel is mostly freehold. What's injected into the REIT, however, is only 50 years of the lease. This is similar to Parkway REIT's hospitals.

Indeed, the valuation of $702m looks rich. As a reference, CDL H-Trust is trading at a 6% yield. This is likely why the REIT is selling as a "stapled security". Maybe they'll stapler Greek bonds together with this, to prop up the yield It's also possible that OPHL will pay higher than market rate for the leaseback as well.

[yeokiwi]

The 3 assets sold generated 27m in profits for FY2011, they are sold for 702m (page 11 in the attachment below). but the problem here is it takes great optimism to sell at such a high price. Will you buy into such a reit with p/e around 26, i wouldnt. Moreover, the properties are not freehold.

Actually, Orchard Parade Hotel is mostly freehold. What's injected into the REIT, however, is only 50 years of the lease. This is similar to Parkway REIT's hospitals.

Indeed, the valuation of $702m looks rich. As a reference, CDL H-Trust is trading at a 6% yield. This is likely why the REIT is selling as a "stapled security". Maybe they'll stapler Greek bonds together with this, to prop up the yield It's also possible that OPHL will pay higher than market rate for the leaseback as well.

The best comparison is CDL Hospitality trust.
The yield is around 6% and the Price to book ratio is around 1.2.
The interest that CDL HT is paying is around 2.8%.

With some changes in market rate for leaseback, gearing and interest rate control in the first few years(like how the banks offer our condo crazy singaporeans), it should be possible to achieve a yield of 6% for the 3 hotels with the selling price of 702million.

[propertyinvestor]

The 3 assets sold generated 27m in profits for FY2011, they are sold for 702m (page 11 in the attachment below). but the problem here is it takes great optimism to sell at such a high price. Will you buy into such a reit with p/e around 26, i wouldnt. Moreover, the properties are not freehold.

Actually, Orchard Parade Hotel is mostly freehold. What's injected into the REIT, however, is only 50 years of the lease. This is similar to Parkway REIT's hospitals.

Indeed, the valuation of $702m looks rich. As a reference, CDL H-Trust is trading at a 6% yield. This is likely why the REIT is selling as a "stapled security". Maybe they'll stapler Greek bonds together with this, to prop up the yield It's also possible that OPHL will pay higher than market rate for the leaseback as well.

So creative of you to think about stapling bonds to units in the trust to boost yield

[Nick]

1) The operating profits generated from the properties should be higher in a REIT structure as a REIT does not pay income tax and it does not treat depreciation as an expense. Hence its cash earnings will be much higher and it is possible to attain 5 - 6% NPI yield.

2) Hospitality trust (like CDLHT) tend to exist as stapled securities ie a REIT + dormant business trust. The business trust is activated when the REIT needs an internal hotel manager to operate the Hotel when the tenant defaults or it chooses to undertake a development project on its own.

(Not Vested)

[bluechipstamp]

With some changes in market rate for leaseback, gearing and interest rate control in the first few years(like how the banks offer our condo crazy singaporeans), it should be possible to achieve a yield of 6% for the 3 hotels with the selling price of 702million.

Thanks. U r right... I forgot about gearing altogether.

CDL's Singapore Hotel Rev/Prop Val is 6.77%. At $702m, OPHL's ratio would be a comparable 7.2%. A similar gearing/interest should do the trick of propping up the yield to a comparable level.

OPHL is also acquiring the healthcare and hospitality business from Far East at a cost of 420m with profits of only 8.8m (p/e almost 50)

IIRC, Novena Medical Ctr started operation sometime mid-2011. I was there in Aug 2011, and many units were still empty. That $8.8m is unlikely to be reflective of a full-year op.

Hospitality trust (like CDLHT) tend to exist as stapled securities ie a REIT + dormant business trust. The business trust is activated when the REIT needs an internal hotel manager to operate the Hotel when the tenant defaults or it chooses to undertake a development project on its own.

Thanks for the explanation, nick.

[propertyinvestor]

Cheeki so daring! Sit all the way in the front row!

now that the EGM is concluded, OPH is going to list Far East H trust very soon. Impressive turnout!

[ngcheeki]

Cheeki so daring! Sit all the way in the front row!

now that the EGM is concluded, OPH is going to list Far East H trust very soon. Impressive turnout!

Yes, I was there sitting at the front row. I'd to rash for work after immediately after the meeting was concluded if not I would have asked the chairman and CEO some questions.

By the way, did you manage to find out when the FEO H-REIT going to be listed?

[propertyinvestor]

Cheeki so daring! Sit all the way in the front row!

now that the EGM is concluded, OPH is going to list Far East H trust very soon. Impressive turnout!

Yes, I was there sitting at the front row. I'd to rash for work after immediately after the meeting was concluded if not I would have asked the chairman and CEO some questions.

By the way, did you manage to find out when the FEO H-REIT going to be listed?

No idea, they said a draft prospectus is already ready. Targetted listing by the end of the year. I suspect they will list only after Ascendas and M&L H Trust has successfully listed.