Citi Research analyst Brandon Lee is keeping his “buy” call on UOL Group after its 50.4%-owned company, Singapore Land Group U06 , announced that it agreed to sell its 100% stake in UIC Land. UIC Land is the registered proprietor of 61 Stamford Road (better known as Stamford Court).
Singapore Land Group, through its wholly-owned subsidiary, UIC Development, entered into a sale and purchase agreement (SPA) on Aug 12 to sell its 13 million shares – or 100% stake – in UIC Land to Spark61.
The consideration amount will be based on the adjusted net asset value of UIC Land as at the completion date of the disposal. It will be satisfied in cash. The consideration will also be based on the agreed property value of $132 million attributed to 61 Stamford Road. Based on a valuation report by Edmund Tie & Company (SEA), the property is valued at $109.5 million as at June 30.
The independent valuation was commissioned by Singapore Land Group and based on the property’s highest and best use.
According to Lee's calculations, the purchase consideration is expected to be $125 million excluding the adjustments to be made after the completion of the acquisition.
The property is a 28-year-old four-storey office building located at the fringe of Singapore’s central business district (CBD). It has a total net lettable area (NLA) of 65,000 sq ft and has 69 years left on its 99-year lease.
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Singapore Land Group has received a deposit of $6.6 million on the date of the SPA. Upon the completion of the disposal, Spark61 will pay Singapore Land Group the amount equal to UIC Land’s estimated adjusted net asset value. This will be calculated based on the draft pro forma statement to be prepared in accordance with terms of the SPA.
According to Singapore Land Group, the proposed disposal is in line with its ongoing active portfolio management initiatives, which enables it to unlock value from its assets.
It is not expected to have any material effect on its net tangible assets (NTA) per share and earnings per share (EPS) for the FY2024 ending Dec 31.
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Citi’s take
The divestment of Stamford Court represents UOL Group’s and Singapore Land Group’s second divestment over the “past couple of years” after UOL’s sale of Parkroyal on Kitchener Road in October 2023, notes Lee in his Aug 13 report.
“More importantly, this transaction points to an ongoing improvement in Singapore’s investment market (especially offices whereby Mapletree Anson was recently sold for 3.8%) for Singapore assets, which may help developers, asset managers and Singapore REITs (S-REITs) as they seek to divest aged assets and improve balance sheets,” he writes.
Based on Lee’s calculations, the sale should net Singapore Land Group a gain of $24.5 million, which translates to $12.3 million to UOL’s attributable stake and add 1.5 cents – or 0.1% - to the latter’s revalued net asset value (RNAV). The property’s existing plot ratio of 3.5 times appears to be in-line with the location’s maximum plot ratio.
Lee’s unchanged “buy” call is due to valuations.
His unchanged target price of $9.20 is set at a 40% discount to UOL’s RNAV of $15.34.
“UOL and City Developments (CDL) are the most direct proxies to Singapore property, in view of their respective 86% and 52% exposure,” he says. “Our target price for CDL is currently pegged at a similar 40% discount to its RNAV.”
As at 11.47am, shares in UOL are trading 5 cents higher or 0.94% up at $5.36.
