For a company that has transformed itself from a purely construction company to one where the main staple is now property development and they managed to almost completely sell off all retails units (at the height of the retail craze!!!) in not one but TWO retail malls within a very short span of time...
(Alex Mall - 2 units left; Junction 9 - 3 units left. Pls call up property agent to confirm if u don't believe)
It is the man at the helm of the company.
If the company knows that the BOOK NAV (not RNAV) will hit $1.50~$1.60 by mid-2015 with the commissioning of the Alex hotel, and the stabilization of recurring income of ~3.5 cents EPS (excluding existing construction arm), it will continue to buy back shares from the market until the share price hits more than $1.00.
There is no better investment than the company itself.
Would like to check your view on the impact of "revaluation gain" on the impact of share price of property counters?
My understanding is that "Revaluation Gain" will increase the book NAV but has no impact on EPS. However, from the link below, revaluation gain seems to have both an impact on NAV and EPS.
"The Metropolis – more valuable than its book
Metropolis was revalued at S$1.24b (S$1,151 psf NLA), clocking a significant revaluation gain of S$490m, boosting both EPS and NAV. We estimate the current gross rent to be S$6.50 psf per month, translating into a net property yield of 5% on its valuation, slightly higher than the average for office buildings under S-REITs (3-4.5%). Given the recent physical transactions of office buildings at S$1,700-1,900 psf, we believe there is more value to Metropolis than its existing book. We value The Metropolis at S$1.67b (S$1,550 psf)."
Given that San Centre and Alex Hotel will be ready for occupation by end 2014 and mid-2015 respectively, how would stock market react to the potential spike in NAV of CES, especially for the Park Hotel ( NAV increase ~25-30 cents, depending on 4-star hotel valuation)?
Managed to extract the following info posted earlier.
"Singapore hotel: Company says it will probably revalue its hotel at Alexandra (in Singapore) but book any surplus into reserve rather than profit. I believe a $800,000 per key value for the hotel is probably fair at the moment.
CES does not seem averse to selling the hotel off if an attractive offer surfaces."
To benefit shareholders more, just curious why don't the company classify the hotel as an "investment property" so that any revaluation gain will increase NAV as well as EPS, rather than recording the hotel as a "PPE", which will result in increase in NAV only but no impact to EPS.
I am not well versed in accounting treatments but speaking from observation, I think companies are likely to put a hotel asset under PPE (prop plant eqpt) so that they don't have to report valuation changes every year, the gains for which are subject to income tax.
Nevertheless, a company (like Roxy) may choose to indicate a market value for its hotel, as a footnote, without changing the figures (of the PPE) in the balance sheet. Hiap Hoe had revalued its ZP (but probably due to SB takeover deal) and yet the market is valuing the counter beyond those revealed values.
But as you can see, sharp investors can see beyond such treatments (of either highlighting or not highlighting market values), and in fact not revealing such figures can mean an opportunity for investors such as yourself to dig for hidden values.
So, I think it's not very important how a company treats its assets. Both have its advantages and disadvantages(to you as an astute investor). Just know that companies have these reasons to choose their accounting options:
1. Being fair to minority shareholders by revealing as much info as possible.
2. Trying to "support" its stock price by revealing the same.
3. Trying to "hide" values so that the market misprices the stock, and hopefully the majority shareholder can privatise the stock at a lower price in future.
4. For tax purposes, for simplicity of accounting (no need to revalue every year, which may cost), and any other legit and practical reason.
4. Just not sure what it is doing, or not sure if one way is better than the other, bending with the wind.
5. Perhaps a dozen other reasons...
In short, it's good to think about all these, but I am not too concerned.
For conservative accounting policy cos usually will not arbitrarily revalue their assets as it will be scrutinised by the corporate governance and auditors.Also much costs involved.For any revaluation exercise there should be a purpose,e.g Hiap Hoe,etc.Hence fully accounted for in acceptable accounting policy.
Also if you actually disburse the revaluation gains in P&L and if there is a downturn in subsequent years,the co will have to write down the assets and the consequences will be grave for managemnt as their credit rating will be adversely affected,in terms of their ability to raise cheap working capital.
The norm will be a footnote,as Sumer has so accurately highlighted.
In CES's case,the management has been very prudent to enhance market values just by increasing buy-back of it shares.This also helps them to increase their majority percentage to prevent any foolhardy hostile takeover as they do not have strong control.
I hope they can further enhance our interests by issuing a bonus to reward loyal investor like yourselves.
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