• Acquiring Landmark site in 2-step process
• Allows construction on office and retail
• Lower fair value estimate of S$0.85

Acquiring Landmark with existing leases for now

Yoma announced that, instead of acquiring 80% of the Landmark site after the SPA Group secures a master lease extension to 50+10+10 years (as originally planned), Yoma will now acquire the site with its existing leases (comprising two sub-plots with remaining leases of 24 and 26 years respectively) with a first payment of US$43.2m. The remaining payment of up to US$38.08m will be paid to SPA if and when the master lease extension is secured in future. SPA is also expected to procure approval for the transfer of the site to Yoma, by end Dec-15, from the Myanmar Investment Commission. Yoma’s pro rata development cost for Landmark will be capped at US$40m till Dec-15, in addition to the S$7m already incurred, and should SPA fail to obtain approval for the transfer by then, it will refund Yoma US$43.2m and all monies disbursed for the Landmark project.

To begin construction of office and retail components

We believe this two-step process in acquiring the Landmark site could make sense as it would allow the group to begin construction on the office, retail and hotel components. Pre-sales of the residential component, however, will be delayed until the extension has been obtained. Management remains confident about obtaining the extension – in line with our base case for a new master lease by end-2015.

Lower fair value of S$0.85 (BUY)

To fund this acquisition, Yoma has proposed a 1-for-8 rights issue at 38 S-cents, expected in Sep/Oct 2014 pending approval from shareholders and the exchange. We understand that Serge Pun, the controlling shareholder of Yoma, has indicated his intention to support the entire rights issue. Maintain BUY on Yoma; our fair value dips slightly to S$0.85, from S$0.87 previously, due to a lower NPV surplus from the Landmark project as cashflows from residential pre-sales are delayed. We also apply a 25% discount to Landmark’s surplus contribution to RNAV to reflect limited visibility regarding the lease extension and its completion schedule.

Source: OCBC Research - 17 Jun 2014