SUTL enterprise (previously known as Achieva)

[dzwm87]

Agree that the high cash balance is not entirely free capital. They are tied to deferred membership fees and in a way, reflects a conservative management as they amortize it down. On the flip side, we can remember certain membership gyms which aggressively spend those unearned revenue cash and run into costing troubles. So far, the cash amount matches somewhat to the total deferred revenue amount. The question is what will management do with its incremental cash as their current operation is net cash positive.

Adding to what had already been discussed, I think the key hurdle revolves around capacity constraints on pricing power as well as a lack of expansionary options:
1. For its business model, membership fees are sold upfront and with the scarcity of it, there is little for revenue growth apart from steady line fee amortization. There are some entrance and transfer fees (to facilitate membership resale) but those are very limited in volume.
2. In terms of yacht berthing for ONE15 Sentosa Cove, a quick look at google maps seem to suggest spare capacity is very little. They can earn more on larger yacht berthing fee but I am not sure how much more is available.
3. When you look at their revenue breakdown, a bulk of it is actually derived from F&B, hospitality and event management. They don't give a breakdown but you can figure out how much comes from membership fees, yacht chartering and management fees. So incremental revenue is likely to come from incremental utilization of F&B restaurant, hospitality and events. Given the single asset nature, this now sounds more risky than buying a membership club business.
4. Lastly which is the biggest challenge; it seems like they can't replicate the success they have in ONE15 Sentosa Cove. They had a few big announcements prior to Covid but a search on each one of it seems to suggest that they are not as successful as Sentosa Cove's. An Amap search on their China marinas suggest it's likely that they won't be as successful too (i.e. empty). Another inference is that the little management fee earned implies a low revenue earned by the other marinas. They did try to build another self-operated marina in Puteri Harbour and that failed. There is another one in Phuket which seems to be in limbo.

So, you are really left with a single successful assets with the following characteristics: (1) a limited leasehold tenure with a risk of a capital call in future for a lease extension, (2) a limited spare capacity for growth unless you really understand the extent of operating leverage on its incremental but small revenue growth and (3) a capital allocation risk where pressure to replicate another successful asset could risk sinking extensive amount of capital. The Sentosa Cove marina cost $70 million to build.

Hence, the most probable way to make money from this is likely going to be some earnings growth on strong operating leverage and hope a good story will allow some form of re-rating.

[dydx]

Let me air my views on one15marina

1. Lease Expiry in 2034. Most likely they will be granted a long lease extension at a reasonable rate. Sentosa is not on mainland Singapore. The master plan calls for Sentosa and P.Brani to be a leisure, recreation, tourism destination. So much so that I do believe URA+Sentosa Development Corp(MTI) would actually want to have them stay on as part of their very long term plan and have them expand their offerings onto P.Brani since berthing is at full capacity. One15marina adds vibrancy to senstosa, which is exactly what the authorities want. One can also look at Sentosa Golf Club which have their leases extended w/o conditions.

2&3. True only based on the assumption that there is clear indication that there will not be any extension of lease. Even in the worst case scenario, they will be informed very early on and at least be granted some a number of years of extension before being asked to leave. Again the chances of not extending the lease for the very long term is remote.

For country clubs, lease extensions may come with additional costs for its members if they wish to continue to be a member. For yatch owners, it is usually small change if you consider how much money is spend on the yatch, berthing, upkeeping.
Golfing is expensive. Yatching is on another level of expensive.

Hi Big Toe, I really like your perceptive comments on ONEº15 Marina Sentosa Cove's future.

If I may add something on the contributions of ONEº15 Marina to the overall success of the development of Sentosa Cove by SDC. Over 20 years ago when Arthur Tay first conceived and decided to build and invest in a full-fledged marina club with all the amenities for members, boaters and visitors we now see, Sentosa Cove was a large piece of barren reclaimed land. I think it is fair to say that without the successful ONEº15 Marina, the development of Sentosa Cove by SDC and the many residential projects by different developers would not have been the same degree of success achieved todate.

Arthur Tay's bet on ONEº15 Marina was a big success too! The total amount collected from initial membership sales exceeded the total development costs for the project. This has contributed to the present large $54.9m (as at 30Jun23) net cash reserve in SUTL Enterprise, which is larger than the deferred membership income balance of $41.5m - itself to be amortised till 2034 in accordance with the prevailing accounting rules. From a project development angle, this non-refundable amount was 'realised' after the marina club and its facilities/amenities were completed and open for use by its members many years ago. IMHO, the deferred membership income balance as a liability in SUTL Enterprise's B/S is unreal.

[d.o.g.]

The total amount collected from initial membership sales exceeded the total development costs for the project. This has contributed to the present large $54.9m (as at 30Jun23) net cash reserve in SUTL Enterprise, which is larger than the deferred membership income balance of $41.5m - itself to be amortised till 2034 in accordance with the prevailing accounting rules. From a project development angle, this non-refundable amount was 'realised' after the marina club and its facilities/amenities were completed and open for use by its members many years ago. IMHO, the deferred membership income balance as a liability in SUTL Enterprise's B/S is unreal.

Deferred Membership Income
===
Each month, the club has operating costs that it must pay, regardless of whether there is any usage of its facilities. It draws down its cash balance, while recognizing deferred membership income. For this aspect of the club, regardless of whether it turns an accounting profit, there is no cash inflow, only cash outflow. If the club is frugal, it may end up with a net cash balance at lease expiry. However, most likely this cash will have to be put towards lease extension.

Lease Extension
===
If all the excess cash is paid out to shareholders and the full cost of the lease extension levied on the club members, there might be pushback and the club could lose members, reducing future revenues from dining, lodging and berthing.

Carousell lists many people trying to offload their club membership for $10-15k, a steep discount from the initial $60k price. At least one buyer is willing to pay the $9k+GST transfer fee from the $13k asking price, which leaves him/her with less than $4k net. In the description it says the membership was bought for $18k.

IMHO the much-lower prices on Carousell mean that SUTL did a great job initially to market the membership... but it is also now an open secret that $60k was/is far too much, and the members may not take kindly to paying $60k again to extend the lease. So my view is that some, if not all, of the cash remaining from the deferred membership balance will have to contribute towards lease extension. Certainly from the ethical point of view, it belongs to the members, and any savings should be used for their benefit i.e. reducing the additional capital needed for lease extension.

Another aspect of the lease extension is non-financial. The Tay family are wealthy (Forbes puts them at #26 in Singapore, net worth US$1.6bn) and don't need the dividends from SUTL. On the other hand, it may benefit their social standing among the club members if they use any excess cash to help pay for the lease extension. If they have to choose between the approval of the wealthy club members (some of whom may be close friends or business associates) or the approval of SUTL retail shareholders, what do you think their decision will be?

As usual, YMMV.

[Big Toe]

The fairer and a more probable outcome might be this.

Lease is granted, cant be sure how long or how much. But with all things considered, it may be a slightly shorter renewable 20 yr lease or it may remain a 30 yr lease. Cost of extension will be a reasonable one, somehwat on par with what they paid earlier. This is in line with all other short/long term leases with the all gov agencies. The government is pro business and DO UNDERSTAND a large amount of money is sunk into the marina. The government is the best landlord in SG when it comes to leasing.
Btw. MBS is not a good benchmark as gambling is a social ill. Social ills(much like smoking) are taxed more. And even then, amounts are reasonable compared to the original cost of development.

A famous example would be SLA renting out black and white bungalows and the cost of maintenance.
One can calculate the price of such a house, maintenance cost and the yield.

Also consider Sheng Shiong which are on HDB short term leases for most of their outlets. Is there a chance that HDB takes back ALL the units during renewal? No. HDB somewhat adjusts its rental mostly lower according to market rates if the unit has beem over bidded. This is true for supermarkets since there is stiff competition amongst supermarkets and many units are over bidded in recent years.

Now to country clubs, the country clubs that have leases not renewed are those affected by public housing or infrastructure, all of them on the mainland singapore. Even then they were given a long notice. Now consider the location which the marina sits. What possible public infrastucture that ties in with the development of sentosa/URA master plan can we imagine? None. Unless there are AI powered flying electric pleasure craft being developed by Elon Musk that can be ready soon.

Now onto the financial impact. What is the probable outcome?
Some amount is set aside for the lease renewal and it is prudent to do so. They have already done so.
Consider a taxi driver who owns a taxi for 10 years and already paid for it, now the taxi is 7 years old and he has already set aside full sum of money for renewal of the COE 3 years ahead of time and he still continues to drive and earn money. (ok so taxi drivers are not allowed to own it, grab drivers are, but just an example)

Will there be a shortfall 10years from now? That is the what shareholders have to decide. Also members are well aware of the fact that the Marina is not freehold and membership is tied to the 30yrs(Much like our COE is 10years and cheapest one at $100K now). If one wants to continue, a smaller sum may be needed. Membership is an expense and a consumption, not an investment. Even though some try to invest in it.

Onto Tay family, true that this is one of the many investments they own and they are very wealthy. The fact of the matter is they are major shareholders of the Marina and not running a charity. There is no need to choose between the business and members. The business needs to be sustainable, runs a decent profit and accoutable to shareholders. The members enjoy their memebership within a specific time line and facilities are well kept/up to date. Discounts are also offered to members for using their facilities.

[dydx]

It pays to just go through the 1H results with a fine comb to appreciate how profitable and valuable is the underlying business..
https://links.sgx.com/FileOpen/1H%20FY20...eID=768599

About revenue, the membership related fees and management fees total of $5.22m included a higher $1.82m (vs. $1.6m in 1H-FY22) from deferred membership income recognised (averaging $3.7m/year), with the balance coming mainly from the 3,100 members' monthly subscriptions (at $176/month), transfer fees ($8.5k/transfer), and management fees from marina projects. The larger sales of goods and services total of $14.39m (+13%YoY) are contributed by banquet, chartering, room (26), and marina income - the last being most important source! To better appreciate marina income - and its 'stickiness' when the 272 wet berths are substantially filled - you have to review the size and layout of the marina, and the services rendered and the charges..
https://one15marina.com/wp-content/uploa...r-2021.pdf
https://one15marina.com/marina/overview/

In terms of cash generation, in 1H the operation delivered $5.72m (NP of $4.76m + depreciation of $2.78m - $1.82m of deferred membership income, which doesn't bring in actual cash) after tax. This is equivalent to a cash generation (profit) margin of 32% on adjusted cash revenue of $17.79m (excluding the $1.82m of non-cash deferred membership income). A simple extrapolation of the above will give a full-year after-tax cash generation of $11.44m (before accounting for maintenance capex) - equating to approx. $0.13/share (based on the latest 87.49m issued shares excluding treasury shares).

To determine the fair intrinsic value of the business, we have to include the cash reserve of $54.9m (as at 30Jun23) - equating to $0.628/share - and the operating fixed assets ($59.0m) and net current assets supporting the marina business.