SG Property Development Rules

New (and existing) rules applying to property developers (BT Fri 9th Dec, front page, Kalpana Rashiwala).

Old rules:

• Any developer buying a Government Land Sale (GLS) residential site had to complete development in 5 years (no time limit on sales).
• When buying a private sector residential site, foreign developers have to obtain a Qualifying Certificate, which requires 5 year limit for the TOP (development) and another 2 year limit on sales. Any developer with even a single foreign shareholder is considered 'foreign', hence CDL, Capitaland & Wheelock face these limits. Only local, privately owned developers (Far East, Hoi Hup) were except.

New rules:

• For any site bought after Dec 8th, must develop and sell all units within 5 years. Otherwise they must pay a 10% additional buyer's stamp duty (ABSD) at the end of the 5 year period (with interest).

My thoughts:

• Levels the playing field between private and publicly owned property developers.
• Forcing developers to sell during a downturn may exacerbate it. Every last unit must be sold within the timeframe. Would these measures be removed? Retroactively?
  
• I used to like Wheelock due to their astute market timing. As they have no undeveloped property in its landbank: they are now restricted to developing and selling any new land withing 5 years (previously it was 7).
• SC Global may benefit, as they have a large bank of prime freehold land bought before the restrictions came into force.
  

Sold Wheelock, Wing Tai

Today, 22 Jan 2010. Sold:

• 5 lots Wing Tai @ 2.03
• 5 lots Wheelock @ 2.06

Sold because I want to cut my exposure to potential losses as these stocks are trading quite far from support.

Was careless to enter into these trades.

Bought wheelock, wing tai

On 11th Jan 10, bought:

• 5 lots Wing Tai @ $1.97
• 5 lots Wheelock @ 2.13

No real analysis, still trying to get into the bull market. High-end private property seems to be one of the leading sectors (SC Global, Wheelock, Wing Tai, KepLand).

Panic Buying

On Mon 27th Jul, bought:

• 10 lots broadway @ 42.5c
• 4 lots wheelock $$1.88
• 12 lots Hi-p @ 69.5
• 1 lot Venture @ $8.30
• 8 lots Frasers Centerpoint @ $1.07

There was no real plan, no TA, just buying tech and high-beta stocks because the Nasdaq is going up. The rally is too strong, dont want to be left out. Now abt 70% invested.

Long term, I still don't believe in this rally's fundamentals. But need to be on board.

Selling

Started selling.

Wed 18th Jul:
- 8 lots Wheelock@ $1.55, 2 lots $1.54 (cut thru $160 sppt)

Thurs 19th Jul:
- 11 lots pfood @57.5
- 2 lots venture @6.98
- 3 lots SIA Eng @2.65
- 4 lots Yanlord @2.40
- 1 lot SGX @ 6.99

Still holding Boustead, Cambridge, A-REIT, RMG, Midas

Bought Venture, RMG, Wheelock

1 lot Venture @ 5.08, 12 lots RMG @ 79c, 5 lots Wheelock @ 93c.

Long term investments.

Am now 50% invested. This is a comfortable position, since the stocks are still quite low (but not as low as the Asian Crisis or SARs), and the markets may be turning around for good.

Brought Venture and Wheelock

Bought 1 lot Venture at $4.47.

Bought 5 lots Wheelock, at 88c.

Half my intended positions.

Wheelock End 08 update

Released 4Q08 results on 20th Feb. They recognized a headline grabbing 200m loss on their listed investments in HPL and SC Global, but I'm valuing these at zero because I can't be bothered to go thru another two companies' financial statements.

Cash:

After collecting for The Cosmopolitan and The Sea View, they have abt 380m (31.5c/share) nett cash (after deducting debt and tax liabilities). They have a tiny 7% in receivables (ie: risk free) for both these projects, due Jan 09. So lets say a total of 33c/share nett cash.

Projects and Landbank:

End Dec 08.

Property Description and price estimate	% sold and completed (based on URA's payment scheme, not Wheelock's revenue recognition)	% Payment collected	Payments owed
Ardmore II 118 4 bdrm units. Priced 4.2m-5.5m. So revenue conservatively is 500m. Assume 200m development costs. Gives 300m.	100% sold. "Progress billings for Ardmore II range from 40% to 45% and we expect to achieve 60% by the end of 2009."	Assume all 45% collected as part of the cash.	Awaiting 55%. Translates to 180-210m or 13.5c per share.
(All the properties below are same as before) Scotts Square 388 1,2 and 3 bdrm units. ASP $3,994 psf (3Q08 results, Sect 10). From floor plan(Apartments-->floor plan): scotts wing has at least 150,000 sq ft, orchard wing 72,000 sq ft, total 222,000 sq ft. So 620m for the 70% sold. Deduct development costs of 168m. So 452m for the 70% sold.	70% sold. "Foundation works for the project are expected to complete in early 2009 and the next staged progress payment of 10% has commenced in the 1st quarter of 2009." Expected TOP 2011.	0nly 20% collected	80% unrecognised, so not in receivables. Gives 361m (or 30c per share). At least 30% of the development's units sold to Singaporeans. So up to 40% may be sold to foreigners.
Orchard View 30 4-bdrm units. No idea what it can sell for.	Expected 2009. To be launched for sale upon completion, so no URA payment schedule.	none	none.
Ardmore III	Wait till next property cycle.	none	none

Investment Properties:

Half their balance sheet is made of 790m for Wheelock place. No idea how this is justified, for an 80yr leased property that generated 37m revenue in 2008. As an very rough guess, I would cut its value to 300m (25c/share) instead.


In results they said:
"A copy of the revaluation report is available for inspection at the Company’s registered office, 501 Orchard Road, #11-01 Wheelock Place, Singapore 238880, during normal business hours for 3 months from 20 February 2009."

Wonder if anyone will ever take them up on their offer?

They will also hold a few retail outlets in Scotts Square.

Wheelock: updated

Updated previous post on Wheelock... many mistakes.

Aim was to project Wheelock's net cash (and the likelihood of it actually receiving that cash), to determine at what price I would buy. I expect the property market to fall further - unlike the stock market which drops like a stone falling off a cliff, property falls slowly like honey running downhill. If/when property stocks get battered again, what price do I want to stick out my hand to catch the falling knives?

Value hunting #5: Wheelock Properties

[Edited 24th Jan - too many mistakes - the values of the developments re-estimated, also take development costs into account. Changes in italics.]

They:

• Develop and sells high end luxury homes (4-5m price range).
• Rents retail properties (Wheelock Place, from 2011 onwards: Scotts Square retail).
• Owns some of SC Hotels, a construction company. I am ignoring this.

Wheelock has 1.2bn shares issued.

1) Business Model

Buy property when cheap, develop, sell when hot. Gotta time the market successfully, Singapore property market is like a yo-yo. Interesting commentary on that. Wheelock did a great job selling property at the peak, now it has to collect its payments - build fast then collect debts. We concentrate on its balance sheet....

2) Revenue recognition

The income statement less relevant as earnings are not recurring - it is just realizing the revenue/income from the past sales. Wheelock recognizes based on (estimated) percentage of total construction costs (07AR, footnote 2.19). However, actual *payment* would be based on URAs standard payment scheme. So their cost/revenue recognition may be ahead of the payments.

Wheelock did not sell any properties under URA's deferred payment scheme.

3) Balance Sheet (as of Sept 08):

• Abt 8.3c per share cash (100m), taking after subtracting all their debt and tax liabilities.
• Investment property of 790m (65c per share). This is wheelock place, 99yr tenure from 1990. Last revalued Dec 07. Their operating revenue from this (excl. revaluations) are abt 2c per share (footnote 19 in 07AR). Don't know how the hell this valuation is justified.
  
• Development properties, whose costs/revenue are gradually recognized as they are completed. See the notes on revenue recognition above.
  
• I've estimated cash per share owing, listed red in the table below.

Table below is for 3Q08 results (30th Sept). Next results should be out mid-Feb.

(the whole table is modified - 24th Jan)

Property Description and price estimate	% sold and completed (based on URA's payment scheme, not Wheelock's revenue recognition)	% Payment collected	Payments owed
The Cosmopolitan and The Sea View	Both 100 sold. Both 85% completed in 3Q08 results.	60% (as of Sept 08) But 25% totaling at least 62m. was paid in Oct. This is not counted here, and is still included in receivables.	Add 192m (16c/share) to cash.
Ardmore II 118 4 bdrm units. Priced 4.2m-5.5m. So revenue conservatively is 500m. Assume 200m development costs. Gives 300m.	100% sold. Building 20+th story. So 30-40% complete by URA's definition. TOP scheduled 2010.	Assume all 30-40% collected as part of the cash, since the foundations were already finished before 2Q08 (30th Jun)	60-70% awaiting, assumed not recognized so not in receivables. Translates to 180-210m or 15-17.5c per share.
Scotts Square 388 1,2 and 3 bdrm units. ASP $3,994 psf (3Q08 results, Sect 10). From floor plan(Apartments-->floor plan): scotts wing has at least 150,000 sq ft, orchard wing 72,000 sq ft, total 222,000 sq ft. So 620m for the 70% sold. Deduct development costs of 168m. So 452m for the 70% sold.	70% sold. Piling work in progress, so 20% complete. Expected TOP 2011.	Assume only 20% collected	80% unrecognised, so not in receivables. Gives 361m (or 30c per share). At least 30% of the development's units sold to Singaporeans. So up to 40% may be sold to foreigners.
Orchard View 30 4-bdrm units. No idea what it can sell for.	Expected 2009. To be launched for sale upon completion, so no URA payment schedule.	none	none.
Ardmore III	Wait till next property cycle.	none	none

4) Conclusion:

1. After selling The Sea View and The Cosmopolitan, they should have 300m net cash (abt 25c/share). Confirm this in 4Q08 results.
   
2. At least 15-17.5/share owing on Ardmore II. Since buyers should have already paid 30-40%, they probably will not walk away.
   
3. Biggest risk is the 30c/share owing from Scotts Square. Only 20% payment was collected, and it will not be completed until 2011. Do not know how many of the buyers will walk away, especially if they are foreigners.
   
4. Orchard View and Ardmore III. Dont know how to value them.
5. (80+ yr lease for) Wheelock place, with its 2c/year revenue.
   

What price would I buy?

5) Another way to play this....

Wheelock's David Larence has been very shrewd in the past buying property when it is cheap. You may wait a few years for him to make another purchase, in anticipation of the property market improving - which would be a catalyst for property counters (Wheelock included) to go up. It would be interesting to look at a graph of Wheelock's share price over the last few property cycles and see if share price appreciation was preceded by their property acquisitions. Alternatively, buy your own property, though the freehold stuff is too expensive for me and the 99yr depreciating-crap is too risky to touch....