By VEN SREENIVASAN

 

THE local market can be a tough proposition for companies with businesses, assets and earnings located largely offshore. This can be so even if they are Singapore-owned. The result can be depressed valuations, thin share trading volumes and scant analyst coverage, despite good earnings and strong management.

 

This is a dilemma that mainboard-listed property group Stamford Land has long grappled with. But it shouldn't have had to do so.

Stamford Land is a hotel and property group with assets primarily located in Australia. Its hotel portfolio comprises eight five-star outfits located in Sydney, Brisbane, Adelaide, Melbourne and Auckland. Six are on freehold plots and all sit on prime city locations.

The company also has several property assets, the most valuable of which is Dynons Plaza in Perth.

In Sydney - where three of its hotels are located - it is currently selling the final 10 per cent of its exclusive Stamford Residences & Reynell Terraces luxury apartments at The Rocks. Under Australian accounting rules, profit can only be recognised upon 100 per cent sales, which should happen this year.

In Singapore, it owns a floor at the Southpoint building, where its head office is located.

Stamford Land reported interim profit of some $44.3 million for the six months ended September 2010, up four-fold from $10.3 million a year earlier. In FY2009/10, it posted a full-year profit of $24.5 million.

Yet the only investment house that has covered Stamford Land in the past is Lim & Tan Securities. In its latest report last year, Lim & Tan maintained a 'buy' on the company, citing its understated asset valuations. But last week, CIMB called Stamford Land 'a quality asset play' which was 'under-owned simply because of the lack of massive investment and media coverage'.

As at end-September 2010, the company's net asset value (NAV) was stated as 53 cents. Its actual value could be much more.

Stamford Land has been steadily depreciating its Australian hotel assets. And it has never revalued them.

In Australia, hotels are generally valued at about seven to nine times Ebitda (earnings before interest, taxes, depreciation and amortisation). However, Stamford Land does not disclose the Ebitda of this portfolio, making it difficult to value.

But in 2008, the company rejected an unsolicited offer from an undisclosed international buyer for its eight hotels for A$850 million. At the time, the portfolio was carried in its books at A$382 million. The difference - A$468 million - gives a glimpse at the remarkable intrinsic value of this portfolio.

Spread over some 863 million shares, and converted to Singapore dollars, this translates into a hidden NAV of more than 60 Singapore cents per share.

That was almost three years ago. Since then, hotel room supply in Australia has hardly grown, largely due to the conservative financing bias of Australian banks.

But the potential for realisable value of these assets may have just risen somewhat with the company's recent disclosure that it might redevelop some of its hotel properties.

Responding to Australian media reports, Stamford Land last month confirmed plans to redevelop its freehold hotel property in North Ryde, adjacent to Macquarie University and the train station. The 22,433 square foot site has a plot ratio of 2.5, enough for 625 apartments of about 75 square metres each. The net saleable area of 48,000 sq m at A$8,000 per sq m would enable the company to rake in some A$380 million (S$489 million), before development costs.

The company could also be looking at redeveloping at least two other properties: its 105-room Stamford at Circular Quay in Sydney, and its 252-room Stamford Plaza hotel in Brisbane. Both these properties sit on prime sites, and redevelopment could start once the leases are renegotiated.

Over in Perth, it could sell Dynons Plaza at the right price. Market valuations for this property vary between A$135 million and A$150 million. But given the handsome yield, it may be in no hurry.

Meanwhile, the strong earnings flow so far suggests that Stamford Land's shareholders are looking at potentially attractive dividends this year.

The recent stirring of its stock price suggests that it may finally have clawed its way onto investors' radar screens. But more interestingly, filings show that the company's executive chairman and controlling shareholder, Ow Chio Kiat, has been buying up significant amount of Stamford Land shares - a sure vote of confidence in his company's prospects.