Amara Holdings

[solomonng]

Dorsett share price had been dropping for few years to current price of HK$1.23 currently.

Am wondering why the drop in share price since it has such a high NAV and is paying dividend.....

I thought Tiggerbee made a very good point about comparing amara holdings to many of the listed hospitality shares in hongkong. Many of the hospitality shares in hongkong are trading very cheaply no matter what valuation you use. They have better branding than amara, many of them with balance sheet net cash and they are more international than Amara. An example i can think of will be great eagle holdings (0041), much better and cheap than amara holdings

Dorsett, Eagle Brand Holdings and many other HK listed hospitality related counters may be trading at a bigger discount to Amara, as pointed out by Tiggerbee - presumably I guess these are based on their CURRENT earning capacities without taking into consideration of “growth factor”, am I not right?

The point johnnydash has been trying to make is the potential “incremental earning contribution” from Amara’s new Bangkok/Shanghai projects when fully completed and stabilized.

(not vested)

As of end June 2014, Dorsett manage and operate 23 hotels with 6,599 rooms globally, of which 92% of the rooms are owned.

8 hotels with 2,088 rooms are currently under various stages of planning & development. 218 rooms will be added in 2H 2015, 1210 rooms will be added in 2016 and 660 rooms to be added in 2017. 49.2% of the rooms are owned.

NAV at cost is $1.98, $7.2 if including valuation surplus. From time to time, company will sell some hotels to realize its asset value, with special dividends paid out during those years. Of course, this unlocking of value can only be achieved in good times.

http://www.dorsett.com/investor-relation...esentation

[Boon]

Thanks Tiggerbee,

Dorsett:
Share price =HKD 1.23
Interim EPS (6 months) = HKD 0.03
Interim dividend = HKD 0.02
Assumed annualized dividend = HKD 0.04 => annualized dividend yield = 3.3%
NAV = HKD 1.98
RNAV=HKD 7.20
P/NAV = 0.62
P/RNAV = 0.17

The discount to RNAV is huge – I guess there must be an explanation for this huge “disconnect” – woundn't it be better to sell off their assets instead of operating them ?

Interesting.............would definitely take a closer look ………………….

(not vested)

Dorsett share price had been dropping for few years to current price of HK$1.23 currently.

Am wondering why the drop in share price since it has such a high NAV and is paying dividend.....

I thought Tiggerbee made a very good point about comparing amara holdings to many of the listed hospitality shares in hongkong. Many of the hospitality shares in hongkong are trading very cheaply no matter what valuation you use. They have better branding than amara, many of them with balance sheet net cash and they are more international than Amara. An example i can think of will be great eagle holdings (0041), much better and cheap than amara holdings

Dorsett, Eagle Brand Holdings and many other HK listed hospitality related counters may be trading at a bigger discount to Amara, as pointed out by Tiggerbee - presumably I guess these are based on their CURRENT earning capacities without taking into consideration of “growth factor”, am I not right?

The point johnnydash has been trying to make is the potential “incremental earning contribution” from Amara’s new Bangkok/Shanghai projects when fully completed and stabilized.

(not vested)

As of end June 2014, Dorsett manage and operate 23 hotels with 6,599 rooms globally, of which 92% of the rooms are owned.

8 hotels with 2,088 rooms are currently under various stages of planning & development. 218 rooms will be added in 2H 2015, 1210 rooms will be added in 2016 and 660 rooms to be added in 2017. 49.2% of the rooms are owned.

NAV at cost is $1.98, $7.2 if including valuation surplus. From time to time, company will sell some hotels to realize its asset value, with special dividends paid out during those years. Of course, this unlocking of value can only be achieved in good times.

http://www.dorsett.com/investor-relation...esentation

[Tiggerbee]

Thanks Tiggerbee,

Dorsett:
Share price =HKD 1.23
Interim EPS (6 months) = HKD 0.03
Interim dividend = HKD 0.02
Assumed annualized dividend = HKD 0.04 => annualized dividend yield = 3.3%
NAV = HKD 1.98
RNAV=HKD 7.20
P/NAV = 0.62
P/RNAV = 0.17

The discount to RNAV is huge – I guess there must be an explanation for this huge “disconnect” – woundn't it be better to sell off their assets instead of operating them ?

Interesting.............would definitely take a closer look ………………….

(not vested)

The company did sold off 2 hotels in HK in the past few years. They had a track record of acquiring old buildings at low valuation and turning them into hotels. For example, Cosmopolitan Hotel was converted from an office building. Sheperd Bush in London was converted from a old train station.

Dorsett was actually spinned off from Far East Consortium, a property developer in HK. Far East Consortium remains as the single largest shareholder with a 74% stake.

[opmi]

Dorsett share price had been dropping for few years to current price of HK$1.23 currently.

Am wondering why the drop in share price since it has such a high NAV and is paying dividend.....

Although FECI seems to be separate from the rest of FE Group (FE Holdings & FE Hotels)), Chiu family seems to have bad corp gov. Past 2 years, they (FE Holdings & FE Hotels) have been doing a lot of IPTs. Personal and corporate interests intermingled. I would consider FE Holdings & FE Hotels as chao kuan.

[Boon]

This is the transaction of 336 room Park Hotel Clarke Quay back in 2013:
Sales price = SGD 300 million - bundled with a Master lease
Cap Rate = 5% as reported
=> Implied NOI = SGD 15 million to lessor

Lessor does not have to pay for ff&e replacement which is borne by the lessee =>the lessor's NOI is net of ff&e replacement reserve – that is my point………….................

http://ahtrust.listedcompany.com/newsroo...7B80.2.pdf

page 9 and 10

2.2 Structure of the Acquisition
On 5 April 2013, the REIT Trustee entered into the Sale and Purchase Agreement with the
Vendor for the acquisition of the Hotel.
The Purchase Consideration of S$300.0 million was negotiated on a willing-buyer and willing-seller basis and takes into account the Independent Property Valuation by Colliers.
The Independent Property Valuation was commissioned by the REIT Manager and Colliers in its report dated 31 March 2013, stated that the open market value of the Hotel is S$308.0 million, taking into account the Master Lease, while the Purchase Consideration is S$300.0
million.
The market value of the Hotel was derived by using the Discounted Cash Flow Approach and checked by the Sales Comparison Method. Colliers had taken into account the following in its analysis:
The specific assumptions and basis for arriving at the value of S$308 million are as follows:
(a) property particulars (land area, gross floor area, year of completion and building condition), (b) title and zoning particulars (land tenure and master plan zoning), © location, (d) building features (number of rooms and guest amenities) (e) historical trading performance of the hotel, (f) available market evidence of recent sales transactions, (g) historical performance of the hotel industry, (h) a terminal cap rate of 5.5% and (i) a discount rate of 7.0%.
The specific aspects of the Master Lease which were taken into account are as follows: (a) the agreed lease structure and future projections on rents (including escalation of the Fixed Rent component at 3.0% per annum) and costs based on historical and forecasted financial information, (b) the lease term of 10 years, © a yearly provision for FF&E at 3.0% of total revenue to be borne by the Master Lessee and (d) expenses of utilities, property tax, insurance and property maintenance to be borne by the Master Lessee.
The pro forma annualised capitalisation rate of the Hotel for the period from 27 July 2012 to 31 March 2013 was 5.0% after taking into account the Master Lease. This is at the upper end of the range of capitalisation rates for recent Singapore hotel transactions of between 4.0% and 5.0% (as estimated by Colliers).


2.4 Certain Terms and Conditions of the Master Lease Agreement
The Hotel will be leased to the Master Lessee for an initial term of 10 years with an option to extend for a further term of five years upon parties’ mutual consent. The rental income under the Master Lease Agreement shall comprise:
(i) the Fixed Rent starting at S$11.5 million for the initial 12-month period, with an annual 3% escalation;
(ii) a first variable rent component of 67.0% of any EBITDA (as defined herein) between the Fixed Rent and S$16.0 million per annum; and
(iii) a second variable rent component of 33.0% of any EBITDA above S$16.0 million per annum.
In addition to the above rent, the Master Lessee shall pay a one-time additional rent of S$250,000 in the event that the gross operating profit of the Master Lessee for the year ending 31 December 2013 does not exceed S$19,770,000.

Pursuant to the Master Lease Agreement, the Master Lessee will be paying the Security Deposit1. In addition, Park Hotel Management Pte Ltd, the immediate holding company of the Master Lessee and a member of the Park Hotel Group will be giving the REIT Trustee a
corporate guarantee in respect of the Master Lessee’s obligations under the Master Lease Agreement.

(“EBITDA” means the earnings before interest, taxes, depreciation and amortisation of the Master Lessee, after deduction of furniture, fittings and equipment expenses and other expenses such as insurance and property taxes.)

(not vested)

[johnnydash]

Interesting. I think Amara's boss will not be happy with the comparison, much less one with a sale and leaseback structure.

But no, what we were talking about were Capex in the sense of big sum capital project/ refurbishments of the hotel. Which is the replacement reserves of the hotel. In this case it is the furniture, fixture and equipment. At least thats what I thought we were talking about since you used I think it was 4 million to get your NOI.

If you were referring to FFE when you did your valuation, then wouldn't the amount you used be much too high? Even in the same report you attached the figure they used was 900k or 3% of revenue.

We also must be mindful that the report was published in support of the REIT's decision to purchase. And clearly the presentation will be structured to support that. For instance the cap rate of the hotel is said to be 5% and it may well be that. But in actual fact the cap rate of the hotel in the normal sense is somewhat meaningless in a sale leaseback scheme. In this case, the buyer purchases the hotel, but his cash flow comes from the rent the lessee pays, and not the earnings of the hotel(as is the case of a normal purchase transaction). If we compute cap rates based on the source of his earnings, i.e.; the rental structure, then the cap rate is about 4.5%.

[Boon]

Additional capex = capital improvement to increase cash flow – like adding more room (quantity upgrade) and improve product quality (quality upgrade) to sell for higher price.

“All-in-maintenance-capex” or “all-in-replacement reserve” = all expenses ( accounting capitalized items) that are defensive in nature which are required to sustain existing cash flow – i.e. to maintain the same capacity (same quantity) with the same standard of services (same quality)

Ff&e replacement reserve is only part of the broader “all-in-replacement-reserve” which include other non-ff&e maintenance capex such as major equipment replacement of AHU, elevators, chillers, boilers etc……………

On the Park Hotel transaction, it is worth noting the following contained in the HVS report (Appendix C)

On page C60 => “the hotel investment market in Singapore has seen some actions in recent years with net yield of 4% to 6%”

“Property operation and maintenance expense” on page C66 and “Reserve for replacement expense” are both interesting ones.

On page C67, HVS quoted industry ff&e replacement reserve being 3 to 4% of total revenue.

We are not talking about “additional capex” here.

My assumption for “all-in-replacement reserve” amounts to 6 to 8% of total revenue.

For Park hotel:
ff&e replacement reserve = 3% of total revenue = about 50% of all-in-replacement-reserve”
NOI (50%R) = NOI, net of 50% of all-in-replacement-reserve”
Transacted price = 300 million, based on NOI(50%R)
Transacted cap rate = 5% , based on NOI(50%R)
=> NOI(50%R) = 15 million

For Amara:
Total Revenue = 54 million
All-in-replacement-reserve = 4 million = 7.4% of total revenue
50% replacement reserve = 2 million = 3.7 % of total revenue
NOI(100%R) = NOI, net of “all-in-replacement-reserve” = 17 (EBITDA )– 4 = 13 million
NOI (50%R) = NOI, net of 50% of all-in-replacement-reserve = 17 – 2 = 15 million

Assuming AMARA and Park Hotel are truly comparable and the transacted cap rate of Park hotel is truly representative of market cap rate
=> Same NOI(50%R)= 15 million => same value = 300 million

Conceptually, it seems logical to me.......................or is it really ?

IMO, without the rental guarantee /master lease, the transacted price would most probably be lower => a higher transacted cap rate.

It would be interesting to see how much rental has the buyer collected post acquisition.

As always, an analysis is only as good as its underlying assumptions

(not vested)

[Boon]

Valuation based on per key basis:

Park Hotel (PH):
Land tenure = lease hold => about 90 years left
Number of keys = 336
Transacted price = 300 million (in 2013)
=> Average price per key = 0.892 million per quay

Hotel Grand Pacific (HGP) at Victoria St:
Land tenure = freehold
Number of keys = 240
Transacted price = 210 million ( in 2012)
=> Average price per key = 0.875 million
http://business.asiaone.com/property/new...about-210m

Singapore resort and spa . sentosa (SRSS)
Land tenure = lease hold => about 60 to 70 years to expiry
Number of keys = 215
Transacted price = 211 million (in 2013)
=> Average price per key = 0.981 million
http://www.hkri.com/icms2/ICMServlet/dow...%20SRS.pdf

=> Value of Amara Singapore = 388 keys x 0.875 million = 340 million
=> Value of Amara Sanctuary Sentosa = 140 keys x 0.981 million = 137 million
=> 340 + 137 = 477 million

A big difference of 177 million, compared to 300 million, Ha-ha !

Question is: how comparable are they?

(not vested)

[Tiggerbee]

Dorsett share price had been dropping for few years to current price of HK$1.23 currently.

Am wondering why the drop in share price since it has such a high NAV and is paying dividend.....

Although FECI seems to be separate from the rest of FE Group (FE Holdings & FE Hotels)), Chiu family seems to have bad corp gov. Past 2 years, they (FE Holdings & FE Hotels) have been doing a lot of IPTs. Personal and corporate interests intermingled. I would consider FE Holdings & FE Hotels as chao kuan.

I think you mixed up Far East Consortium (35.hk) with Far East Holdings (36.hk). FEC is controlled by David Chiu. Not sure if he's related to the other Chiu though.

[Boon]

Cap Rate Variations

Everyone in real estate knows how to calculate a cap rate — or do they?

by Daniel Kann

Commercial real estate professionals live and breathe capitalization rates. Every trade publication, market participant, and third-party report relating to real estate quotes cap rates for various markets and properties. But ask a group of real estate professionals to calculate a specific property’s cap rate and you are likely to get a variety of answers — despite the simplicity of the formula. If cap rates are widely used and easily calculated, then why does everyone come up with a different answer?

This article looks at the underlying reasons for cap rates variations, ranging from different uses by market participants to different methods of cap rate extraction. While CCIMs are trained to extract cap rates in a certain way, not all market professionals use the same criteria. Understanding how such variables can affect the cap rate and the value of a property is just as important as developing — and using — a consistent method of cap rate extraction..........................

http://www.ccim.com/cire-magazine/articl...variations