SingPost HQ up for sale with $850m tag

Terms of any leaseback deal could determine price it fetches: observers

THE buzz created by recently unveiled plans to develop the Paya Lebar area into a commercial hub may get a boost from Singapore Post’s planned sale of its landmark headquarters building next to Paya Lebar MRT Station.

BT understands the listed group has launched an expression of interest for the 14-storey building and the price tag is said to be around $850 million based on the existing use of Singapore Post Centre.

SingPost is expected to lease back the space it currently occupies – which is roughly half the building’s one million sq ft net lettable area – for both its corporate office and operations, including the mail processing centre.

The rest of the property is leased to a mix of retail and office tenants, including NTUC FairPrice, Kopitiam, Barang Barang, This Fashion, HSBC Insurance, Northwest Airlines and Symantec Corporation.

CB Richard Ellis is understood to be handling the sale of SingPost Centre.

The current approved use for the site is around 60 per cent industrial and 40 per cent commercial, based on an earlier report.

However, potential investors may seek the authorities’ approval to convert the use to full commercial, to optimise the site’s commercial zoning under both the 2003 and 2008 (draft) Master Plans.

A differential premium would have to be paid to the state in exchange for realising the enhancement in use.

SingPost Centre’s existing gross floor area of 1.48 million sq ft has already tapped the 4.2 maximum plot ratio allowed under the two Master Plans.

The property is on a 352,389 sq ft site with a remaining lease of about 73 years. The 14-storey building, which also has three basement levels (mostly for retail), has 587 carpark lots.

Industry observers say the terms of SingPost’s leaseback arrangement with the potential buyer will be a critical factor in determining the price the building fetches.

Banks have also tightened lending for property acquisitions but core funds and core-plus funds, which rely less on debt and more on their own equity when making property purchases, are still interested in making acquisitions.

BT also reported recently that some of the big overseas funds which have been buying office properties in Singapore in the past few years are now also looking at industrial, logistics and business park assets, which offer higher yields.

Against this backdrop, SingPost Centre’s potential buyer may well continue with the existing industrial/commercial use of the property.

SingPost has also been selling some of its smaller properties, for instance, at Clementi Central, Boon Lay, Marine Parade and Hougang South. The group is still left with a dozen properties, including two in the prime districts – Tanglin and Killiney Road post offices.

Expenses raise their ugly heads

Story: Underlying net profit of S$33.6m (-1.2% y-o-y, -8.0% q-o-q) was below our S$35m forecast as 13% y-o-y increase in operating expenses (excluding impairment charge of S$4.9m) was above our already high single digit growth estimate. The company declared final dividend of 2.5 cents taking full year dividends to 6.25 cents.

Point: Operating expenses grew mainly due to (1) rising wages (2) higher traffic volume coupled with higher oil price and (3) higher selling expenses for boosting retail sales. Management has guided for stabilisation of operating costs at 4Q08 levels, which means that 1Q09F and 2Q09F could be hit by high cost base compared to the corresponding quarters in FY08. Moreover, postal liberalisation, although not very significant, can put additional pressure on Singpost’s margins.

Relevance: We have trimmed our FY09 earnings estimates by 6.5% on lower margin assumptions. In view of an uncertain property market, sum-of-the-parts valuation based on assumed sale of SPC building, may be less relevant now. Our new target price of S$1.12 is pegged at 15x FY09 PER (based on historical range of 15-18x) and we downgrade Singpost to HOLD. Stable earnings with 5.5% dividend yield remain as key attraction of the stock.

Update on potential building sale and acquisition. The area around Singpost building was identified as a sub-regional centre in 2007. Singapore Government is expected to unveil its Master Plan for 2008 in the next few months and. depending on the details; SPC building could become more valuable, subject to the property market valuations. We still think Singpost can unlock value out of SPC‘s sale and proceeds could be used for acquisition and special dividends. However, potential acquisition (management highlighted esubstitution as an area of interest) and potential relocation of operations from SPC building are still some of the unknown variables in the equation.

SingPost Q4 net drops 10.6% to $34.5m

But full-year net earnings rise 6.8% to $149.3m

SINGAPORE Post posted a 10.6 per cent year-on-year fall in net profit to $34.5 million for the fourth quarter despite a 5.7 per cent rise in revenue to $119 million.

But for the full year ended March 31, net profit climbed 6.8 per cent to $149.3 million, with revenue up 8.4 per cent at $472.6 million. Q4 earnings per share fell to 1.793 cents from 2.014 cents.

What caused the Q4 fall in net profit was an 18.4 per cent or about $14.5 million jump in total expenses to almost $93 million. Besides the higher costs of labour, goods and administrative expenses, the period included a one-off impairment charge of $4.9 million for two properties.

The increase in full-year revenue was due to all business segments showing improvement.

Full-year mail revenue grew by 7.9 per cent to $365.3 million, underpinned by higher mail volumes and price adjustments.

Logistics revenue rose by 6.7 per cent to $68.6 million due to higher contributions from Speedpost, vPOST online shopping and shipping transactions, and warehousing, fulfilment and distribution.

Retail recorded a 10.8 per cent increase in revenue to $61.6 million, as increased contributions from financial services and retail products offset the decline in agency and bill presentment services.

Said Wilson Tan, SingPost’s group chief executive officer: ‘We will focus on enhancing productivity and efficiency to better support our business growth. Barring any significant changes, we expect operating costs to stabilise.’

SingPost has proposed a final dividend of 2.5 cents per share (tax exempt one-tier), unchanged from the previous Q4. This is to be paid on July 18.

Together with the interim dividends of 1.25 cents paid out for each of the first three quarters, the total dividend for the year will total 6.25 cents per share.

As part of its efforts to cater to consumers’ needs, SingPost is looking into expanding its services and reach.

DMrocket, a one-stop direct mail centre, was launched during the year. SingPost also expanded its hybrid mail business into Hong Kong and Thailand.

It also launched two new remittance services – Visa money Transfer and Cashome to Indonesia and an investment fund with Prudential Asset Management.

Despite the fall in Q4 net profit, SingPost remains upbeat about its outlook.

‘We will continue to implement strategies to drive revenue in our core business of mail and logistics and also continue to leverage on our retail network. We are re-purposing our post offices to reap better yield,’ said Mr Tan.

‘We believe the group is positioned to tackle the challenges ahead and also on track for continued growth.’

SingPost shares closed 0.9 per cent higher at $1.16 yesterday.

SingPost appoints CBRE as consultant for HQ building

SINGAPORE Post is understood to have appointed property firm CB Richard Ellis to advise it on exploring options for the listed group’s headquarters building next to Paya Lebar MRT Station.

CBRE’s appointment followed a beauty parade that SingPost is understood to have conducted late last year to select a property consultant, as reported by BT yesterday.

Property industry sources told BT yesterday that the job was clinched by CBRE, which, however, has declined to comment on its appointment.

In its third-quarter results statement last month, SingPost said that it is ‘continuing to review its non- core businesses, and is also exploring opportunities in respect of SingPost Centre, including unlocking the value of SingPost Centre’.

Analysts have estimated the building’s value at around $1,000 to $1,300 per square foot of existing net lettable area, assuming full-commercial use, which would reflect a total quantum of between $1 billion and $1.3 billion. The 14-storey building is on a 352,389 sq ft site, with a remaining lease of about 73 years. It has a total net lettable area of about 1 million sq ft, of which about half is currently occupied by SingPost for its corporate office and operations including the mail processing centre.

The rest of the property is leased to a mix of office and retail tenants including HSBC Insurance, NorthWest Airlines, Symantec Corporation, Prudential (whose lease expires this year), This Fashion, Barang Barang, NTUC FairPrice and Kopitiam.

Potential HQ Sale is the upside

Story : According to Business Times headlines today, Singpost may sell its HQ building which is estimated to be worth S$1.0b – S$1.3b. Although the company declined to comment, if this comes true, the sale should result in a bumper dividend yield.

Point : Investors can expect dividends of 23-45 cents per share if HQ sale takes place, assuming 50%-80% payout of sales proceeds. We think that that 20%-50% of sales proceeds could be used to make acquisitions to drive growth, which management highlighted recently.

Relevance : Upgrade to BUY with a target price of S$1.35 based on breakup valuation. We prefer Singpost for its stable operations with over 6% in regular dividends and HQ sales as potential catalyst. Even if HQ sales do not materialize in the near term, downside risk is limited due to its healthy dividend yield.

Potential value of HQ building is 45-57 cents per share. The book value of HQ building is around S$300m. Assuming that HQ building can be sold for S$1.0-1.3b, it would result in divestment gains of S$700m-S$1b. With 18% tax rate on divestment gains, the cash generated from sale of HQ works out to be S$874m – 1120m or about 45 – 57 cents per share.

Fair value of Singpost without HQ building is 85 cents per share. We need to take out the rental income of S$21.5m from HQ and add the rental expenses of S$21.5, which Singpost would have to pay for its own office space. As a result FY09 net income would be lowered by 28% to S$110m. If we value this business at similar 15x earnings, it works to be S$1.65 billion or 85 cents a share.

Fair value of Singpost with HQ building. If we add the two parts together, the total value of the company would be S$1.30 – S$1.42 per share.