Hang on to Hotel Properties, say some analysts
By Michelle Teo:
It's known as the quiet corner of Orchard Road, away from the bright lights at the junction of Ion Orchard and the revamped malls around it. But now the area comprising Ming Arcade, Forum The Shopping Mall, HPL House, Hilton Singapore and the Four Seasons Hotel – is under the spotlight. The properties are held under Hotel Properties Limited (HPL), which is now the target of a takeover by tycoon Ong Beng Seng, and Wheelock Properties.
The bid, which would consolidate control under the consortium called 68 Holdings, has set off buzz among industry watchers about how the area could be redeveloped and revived. Various suggestions have emerged, from serviced apartments to a large integrated development with offices, malls and hotels.
HPL, which listed on the stock exchange in 1982, was co-founded by Ong. It has a portfolio of 28 luxury hotels and resorts across Asia as well as in the US, Czech Republic, and South Africa. It was also the developer of pricey condominiums including Cuscaden Residences and Nassim Jade in Singapore and The Met in Bangkok. The company’s earnings have grown more than 33% over the last three years, and it has been cashflow positive since 2009.
Yet, HPL’s stock has largely flown under investors’ radar and shares in the company have been trading flat since the financial crisis, at or below book value. Meanwhile, the Orchard properties in its stable have long begun to look dull and dated, particularly after the wave of refurbishments further along the street.
Ong is HPL’s managing director and owns 18.44% in the company. Under the $3.50-a-share deal, Ong, Wheelock, HPL director David Ban and their wives, will sell their shares to 68 Holdings, which gives it a 41.9% stake in HPL. That triggers a mandatory offer for the rest of HPL. 68 Holdings is 60% owned by Ong and Ban, and 40% by Wheelock. In the statement to the stock exchange, the offerors say they intend to keep HPL’s listed status, and the move is to consolidate their shareholdings “so as to be in a position to cooperate and implement their shared objectives for HPL and enhance value over time.”
Analysts say that, if redevelopment is indeed on the cards, minority shareholders should hang on to their stock instead, especially since the offer isn’t particularly attractive. As Lim & Tan notes, $3.50 per share values the stock at just 1.13 times its [book value per share] of $3.13, “which pales in comparison to UOL’s 1.65 times price-to-book offer for Pan Pacific Hotels in Oct 2013.” Shares in HPL have shot up in value in the last couple of days, surpassing the $3.50 point and closed at a high of $3.75 on Apr 17.
“The long-time talked about redevelopment potential of HPL and Wheelock’s assets along Orchard Road...will finally start to happen given Ong’s and Wheelock’s latest move, that also states if nothing were to happen over the next five years (after the closing of the offer), their respective stakes will be distributed back to them,” Lim & Tan adds. “Based on the eight cents 2013 dividend, investors are still paid a reasonable 2.3% yield to wait for positive developments to happen.”
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Potential developments:
1) Tussle between 68 Holdings and OBS' brother in law, Peter Fu Chong Cheng who controls 29% of HPL.
2) 68 Holdings float HPL assets into a hospitality reit just like what Far East did to Orchard Parade. It could potentially be valued at more than $2 billion dollars.
3) Development of Four Season Hotel, Anguilla Park car park, HPL building & Ming Arcade with Hilton Hotel & The Forum with Orchard Road frontage.
My target price of HPL share is $5.50 to $6.50.
Caveat emptor.
By Michelle Teo:
It's known as the quiet corner of Orchard Road, away from the bright lights at the junction of Ion Orchard and the revamped malls around it. But now the area comprising Ming Arcade, Forum The Shopping Mall, HPL House, Hilton Singapore and the Four Seasons Hotel – is under the spotlight. The properties are held under Hotel Properties Limited (HPL), which is now the target of a takeover by tycoon Ong Beng Seng, and Wheelock Properties.
The bid, which would consolidate control under the consortium called 68 Holdings, has set off buzz among industry watchers about how the area could be redeveloped and revived. Various suggestions have emerged, from serviced apartments to a large integrated development with offices, malls and hotels.
HPL, which listed on the stock exchange in 1982, was co-founded by Ong. It has a portfolio of 28 luxury hotels and resorts across Asia as well as in the US, Czech Republic, and South Africa. It was also the developer of pricey condominiums including Cuscaden Residences and Nassim Jade in Singapore and The Met in Bangkok. The company’s earnings have grown more than 33% over the last three years, and it has been cashflow positive since 2009.
Yet, HPL’s stock has largely flown under investors’ radar and shares in the company have been trading flat since the financial crisis, at or below book value. Meanwhile, the Orchard properties in its stable have long begun to look dull and dated, particularly after the wave of refurbishments further along the street.
Ong is HPL’s managing director and owns 18.44% in the company. Under the $3.50-a-share deal, Ong, Wheelock, HPL director David Ban and their wives, will sell their shares to 68 Holdings, which gives it a 41.9% stake in HPL. That triggers a mandatory offer for the rest of HPL. 68 Holdings is 60% owned by Ong and Ban, and 40% by Wheelock. In the statement to the stock exchange, the offerors say they intend to keep HPL’s listed status, and the move is to consolidate their shareholdings “so as to be in a position to cooperate and implement their shared objectives for HPL and enhance value over time.”
Analysts say that, if redevelopment is indeed on the cards, minority shareholders should hang on to their stock instead, especially since the offer isn’t particularly attractive. As Lim & Tan notes, $3.50 per share values the stock at just 1.13 times its [book value per share] of $3.13, “which pales in comparison to UOL’s 1.65 times price-to-book offer for Pan Pacific Hotels in Oct 2013.” Shares in HPL have shot up in value in the last couple of days, surpassing the $3.50 point and closed at a high of $3.75 on Apr 17.
“The long-time talked about redevelopment potential of HPL and Wheelock’s assets along Orchard Road...will finally start to happen given Ong’s and Wheelock’s latest move, that also states if nothing were to happen over the next five years (after the closing of the offer), their respective stakes will be distributed back to them,” Lim & Tan adds. “Based on the eight cents 2013 dividend, investors are still paid a reasonable 2.3% yield to wait for positive developments to happen.”
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
Potential developments:
1) Tussle between 68 Holdings and OBS' brother in law, Peter Fu Chong Cheng who controls 29% of HPL.
2) 68 Holdings float HPL assets into a hospitality reit just like what Far East did to Orchard Parade. It could potentially be valued at more than $2 billion dollars.
3) Development of Four Season Hotel, Anguilla Park car park, HPL building & Ming Arcade with Hilton Hotel & The Forum with Orchard Road frontage.
My target price of HPL share is $5.50 to $6.50.
Caveat emptor.
