UEMS has entered into a Deed of Termination with LCT for the en-bloc sale of serviced apartments in Aurora development. Note that UEMS has already received several interests from potential purchasers with one having written an Expression of Interest for the en-bloc purchase. As such, UEMS intends to undertake the necessary due diligence with the potential purchaser as soon as possible, allowing them to still conclude the sale by FY19. Management has guided that the sale price for the potential buyer would be able to fetch at least AUD120m (i.e. previously agreed price), if not more. We maintain our forecasts and HOLD rating with an unchanged TP of RM0.74 based on a 70% discount to estimated RNAV of RM2.47.

NEWSBREAK

UEMS has entered into a Deed of Termination with LCT (trustee of Ascendas Australia Hotel Trust, AAHT) for the en-bloc sale of serviced apartments in Aurora development. Recall that UEMS initially anticipated collecting AUD120m in Sep-19 from the sale of the 252 units serviced apartments which was signed back in 3 Dec 2015. We gather that the termination was due to requests for changes in specifications which couldn’t be met.

HLIB’s VIEW

Slight negative. We are slightly negative on the news but reckon that it would not be difficult for UEMS to find a new buyer as the rest of the Aurora development has been fully sold. Note that UEMS has already received several interests from potential purchasers with one having written an Expression of Interest for the en-bloc purchase. As such, UEMS intends to undertake the necessary due diligence with the potential purchaser as soon as possible, allowing them to still conclude the sale by FY19. Management has guided that the sale price for the potential buyer would be able to fetch at least AUD120m (i.e. original agreed price), if not more.

Details on the Aurora development. Aurora Melbourne Central is an 88-storey mixed-use development comprising 959 residential apartments, 252 serviced apartments, office suites and retail with a GDV of AUD750m. The project was completed in 3 stages, with the first stage (SP3) completed and handed over back in Sep-18 and the second stage (SP4) in May-19. The third stage (SP5), is slated to be handed over in Oct-19 while the en-bloc sale of serviced apartments is now targeted for Dec-19.

Forecast. Unchanged as UEMS should be able to recognise the sale of the serviced apartments by FY19. Maintain HOLD with an unchanged TP of RM0.74 based on a 70% discount to estimated RNAV of RM2.47. We see a lack of near-term catalyst given the subdued sentiment for property outlook in Johor as well as potential bumpy earnings moving forward given the adoption of MFRS15 in the recognition of their overseas projects.

Source: Hong Leong Investment Bank Research - 17 Sept 2019