Lee Kim Tah Holdings

[dydx]

re-valuation gain continues to be the biggest contributor to the profit, excluding revaluation gain, operational profit would be around 3 million only.

as an asset play, there is always the question, can you sell it at the valuation, especial an expensive asset like JP valued at around 1.5 billion?

Conceptually, the operating profit of a shopping mall developer over the lifetime of ownership of the property asset includes: (1) recurrent rentals collected from tenants (including variable rents linked to retail sales), plus other sources of operating income, e.g. car park fees, maintenance service charges, in-mall advertising/promotion, etc.; and (2) the gain from the eventual sale of the mall to a 3rd-party. As the mall - in this case, JP - is treated as an investment property for accounting purposes, it is a common treatment to "mark it to market" at least on a yearly basis before its value is recorded in the B/S. The relevant question to ask is whether the valuation applied is done professionally and on a realistic (or conservative) basis, reflecting the achievable prevailing fair market value of JP.

As JP is a high-quality and highly successful mall generating sustainable and high rentals, many Reits and other property investors (e.g. SPH, NTUC Income, CapitaLand, CDL, etc.) should view it as a desirable investment target. The inhibitions for a deal in this case are more on whether we have a willing seller - in this case, LKT and Guthrie GTS - and the price to be negotiated. If we look at what CapitaLand Group was prepared to pay for their latest land acquisition for a new mall in Jurong east just this year, and what SPH together with NTUC Income were prepared to pay for Clementi Mall last year, it will be reasonable to believe that a transaction on JP close to the current valuation is highly conceivable and can be quite easily achieved under normal market conditions. I guess at the end it will also depend on the yield the prospective buyers want and financing, but property deals over a billion $ are quite common in Singapore nowadays.

the other thing I don't like is that normally as a company other than a reit, loan on investment properties should be amortized as a conservative way of managing debt risk. But the company simply just rolls over the debt. it does not look to me as a long term asset owning strategy.

You may be interested to note that LKT together with Guthrie GTS have been tapping the SGD Bond market for low-cost long-term funding of JP, via a SPV called Winmall Ltd .....
http://info.sgx.com/listprosp.nsf/5ec09b...000131755/$FILE/Final%20IM.PDF
And a big portion of the bonds issued were rated 'AAA' - i.e. even a notch better than U.S. Treasury's 'AA+' now!

[dydx]

Soon after the release of the positive Q2/1H results on 11Aug11, the Lee Family through their private investment holding co, Lee Kim Tah Investments P/L, has on 12Aug11 resumed buying LKT shares from the open-market, by adding another 165 lots at $0.54/share.....
http://info.sgx.com/webcorannc.nsf/Annou...endocument

IMHO, it really makes no sense for public shareholders to want to sell their valuable LKT shares to the Lee family!

[RBM]

dydx,

Thank you for sharing this snippett. With this latest share purchase, I beleive this means that the % of LKT shares in public hands is now only a smidgen above 20.00% (a few lots only I think). At the time of the annual report 20.06% of LKT shares were in public hands and including this latest purchase the Lee's have since acquired a further ~ 0.06% of the outstanding shares.

I know this question sounds naive ........... if the Lee Family or their Foundation were to acquire any further LKT shares would this give rise to any triggers?? I know that if less than 10.00% is in public hands Rule 723 comes into force but I don't know if going below 20.00% triggers anything or what.

I concede that this is a mercenary question - I'm vested in this one. And I 100% agree with you that barring a personal financial catastrophe or an appealing GO, that it would be highly counter-productive to sell my LKT shares to the Lee family. I believe that following the recent JP-II deal, the Lee's will be even more inclined to take the company private.

[dydx]

RBM,

I am not sure about the details of the rules governing or restricting a controlling shareholder of a listed company buying more shares from the open-market. I have the impression that it is something like not more than 0.5% (?) in every 6 months (?). Perhaps other formers who know the rules in detail can help here.

In LKT's case, based on the Lee Family's behavior so far, I suppose we can expect the Lee's to continue to add to their holdings by taking advantage of the still low market share price. Short of a major market crash, I suppose the Lee's will likely have to pay a higher price over time, in order to secure more shares from the remaining minority shareholders. To cross the crucial 90% mark which will enable the Lee's to trigger a mandatory privatization, I suppose the Lee's will have to round up some of the bigger minority shareholders (including India International Insurance P/L whichs holds 3.84%) holding enough shares together and make them a good enough offer - likely it will have to be at a good premium or closer to the fair intrinsic value of each LKT share. Alternatively, the Lee's can always try their luck by launching a privatization GO at whatever price they feel is sufficient to attract enough acceptances to enable them to cross 90%, as well as passing the tests or hurdles, including earning the support from an IFA and the IDs (which include a rep. from India International Insurance).

I guess those who are willing to hold on to their highly valuable LKT shares till the end will earn for themselves the ultimate prize!

[RBM]

Until just after 4 pm today there was a > 100,000 share bid volume for LKT shares at a price of S$ 0.54 per share. Unusually high bid volume for LKT. And some of this bid volume found its way to a willing seller (or sellers). In fact LKT closed up a tad today, in a market hit by the German (lack of) growth numbers mid afternoon (not that I'm asserting that is pertinent to LKT!).

S$ 0.54 is the price that the Lee's paid for their shares yesterday. May be I read too much into this but lets see if they announce further purchases today.

[dydx]

S$ 0.54 is the price that the Lee's paid for their shares yesterday. May be I read too much into this but lets see if they announce further purchases today.

Today's (16Aug11) announcement confirms the Lee Family added yet another 176 lots yesterday (15Aug11) and paid $0.54/share.....
http://info.sgx.com/webcorannc.nsf/Annou...endocument

Will they squeeze the trigger soon?

[RBM]

With this latest share purchase, I am pretty sure that less than 20.00% of LKT's shares is now in public hands. What is also striking about the announcement dydx shares in his message above is that ............. all (repeat: all) 176,000 shares traded yesterday were purchased by the Lee's. I'll wager that they are trying to pick up shares on the cheap.

[RBM]

1. Looks like the Lee's bought a further 20,000 LKT shares yesterday at a price of S$ 0.545 per share.
2. No LKT shares traded today, Wednesday. But from relatively early on, "someone" posted a bid for 100,000 shares at a S$ 0.545 price. Offerred selling volumes were thin. Only 25,000 shares at S$ 0.555 per share with the remaining offers at S$ 0.57 (55,000 shares) and S$ 0.58 (5,000 shares).

Are the Lee's fishing at the bottom of the pond?

I'm vested.

[dydx]

If minority shareholders, after understanding LKT's great value and the Lee Family's behavior and intentions, choose not to sell their LKT shares, the Lee Family will have little choices left, but to raise their buying prices, or to decide to make a privatization GO earlier.

If, instead of selling their shares, enough minority shareholders and new investors turn buyers and together raise the market share price level closer to LKT's fair intrinsic value, this will also exert pressure for the Lee Family to raise their buying prices, or to decide to make a privatization GO earlier.

Whatever it is, I believe the ground is now hardened for LKT's share price to go up.

[Nick]

re-valuation gain continues to be the biggest contributor to the profit, excluding revaluation gain, operational profit would be around 3 million only.

as an asset play, there is always the question, can you sell it at the valuation, especial an expensive asset like JP valued at around 1.5 billion?

I think the valuation of JP on LKT's B/S is fair.

The annualized rental revenue from 1H 2011 gives rise to $45 million. Since most REITs are efficient structures for leasing, their NPI margin tend to be around 70% (both CMT and FCT have NPI margin of 68-70%). In order words, the NPI of JP would be around $31.5 million. Since retail reits often acquire assets with 6% NPI yield, this would give rise to a valuation of $525 million. LKT carried its JP stake at $486 mil in its B/S as of 31 Dec 2010. The valuation increased tremendously in 30 June 2011 as LKT increased its stake in JP2 from 25% to 50%. But since this didn't impact its revenue in 1H 2011, there is no point including it yet. So is LKT giving a very odd valuation to JP ? I don't think so. Actually, I think they are being conservative with their valuation since the implied NPI yield (based on FY 2010 valuation) is 6.5%.

Personally, I think LKT will most likely divest its stake in JP once the growth in NPI has stabilized. Alternatively, it could do a freightlinks and spin-off a retail reit !

Would appreciate forummers views ! Please correct any mistakes as I didn't spend a lot of time diving into LKT report.

(Not Vested)