Lee Kim Tah Holdings

[Nick]

re-valuation gain continues to be the biggest contributor to the profit, excluding revaluation gain, operational profit would be around 3 million only.

as an asset play, there is always the question, can you sell it at the valuation, especial an expensive asset like JP valued at around 1.5 billion?

I think the valuation of JP on LKT's B/S is fair.

The annualized rental revenue from 1H 2011 gives rise to $45 million. Since most REITs are efficient structures for leasing, their NPI margin tend to be around 70% (both CMT and FCT have NPI margin of 68-70%). In order words, the NPI of JP would be around $31.5 million. Since retail reits often acquire assets with 6% NPI yield, this would give rise to a valuation of $525 million. LKT carried its JP stake at $486 mil in its B/S as of 31 Dec 2010. The valuation increased tremendously in 30 June 2011 as LKT increased its stake in JP2 from 25% to 50%. But since this didn't impact its revenue in 1H 2011, there is no point including it yet. So is LKT giving a very odd valuation to JP ? I don't think so. Actually, I think they are being conservative with their valuation since the implied NPI yield (based on FY 2010 valuation) is 6.5%.

Personally, I think LKT will most likely divest its stake in JP once the growth in NPI has stabilized. Alternatively, it could do a freightlinks and spin-off a retail reit !

Would appreciate forummers views ! Please correct any mistakes as I didn't spend a lot of time diving into LKT report.

(Not Vested)