Straits Times: Sat, Sep 01
SINGPOST has a property portfolio that could unleash a substantial stack of cash if unlocked, OCBC Investment Research has noted in a report.
The bullish local property market may mean it is an "opportune time" for SingPost to sell off some of its assets, said OCBC.
"The group may even receive an offer that is hard to resist," the broker added in an Aug 24 report.
However, OCBC also noted in the report earlier this week that SingPost may not be in a hurry to unlock value as it is cash-rich after issuing perpetual capital securities.
Moreover, selling its property assets would result in a loss of rental income which would therefore hurt its earnings.
"The jewel in its portfolio is the Singapore Post Centre, which is conveniently located near Paya Lebar MRT," OCBC noted.
This building is on a 99-year lease from the HDB which began in August 1982, and is worth an estimated $765 million based on its mix of industrial, office and retail use, said the broker.
OCBC speculates that SingPost could unlock value if it sells and leases back its main office while retaining the building's mixed use status. This should result in an estimated gain of 22 cents a share.
Another way is for SingPost to convert the SingPost Centre from mixed use to full commercial use.
OCBC said this would give it an estimated value of $1.57 billion based on transactions of a property nearby.
This would yield a net gain of 28 cents a share, after accounting for relocation costs and a premium for change of use and lease top-up, it calculated.
OCBC added: "If a conversion exercise is to be undertaken, it is more viable to convert the building for full commercial use to derive maximum value."
But OCBC also noted that selling SingPost Centre would lead to a loss of rental income, which could shave off about a quarter of the company's yearly earnings.
SingPost could also sell some of its post offices but these would yield very little in comparison, said OCBC.
It has 61 post offices, with about half owned by the company. Of these, 14 have restricted use, leaving 16 with the potential to be sold.
OCBC estimated that the company could raise $40 million if it sells the 16 units with an assumed gain of $2.5 million each.
However, this is "small relative to the potential value that can be unlocked from the SingPost Centre", said OCBC.
OCBC kept its buy call on SingPost's stock, with a $1.14 price target. It noted: "Its consistent dividends, strong balance sheet and dominant market position in its home country render it an attractive stock during an uncertain climate."
SingPost shares added 1.5 cents yesterday to close at $1.08.
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