Hotel Properties Limited - OCBC Investment 2018-10-15: A “New” General Offer Candidate?


Hotel Properties Limited - A “New” General Offer Candidate?

  • West Orchard on the horizon?
  • Trading at 26% RNAV discount.
  • Fair Value at S$4.74.

Post the Wheelock Properties (Singapore) General Offer…

  • The impending delisting of Wheelock Properties (SGX:M35) as well as the lack of minority shareholders could help smoothen the path towards a West Orchard redevelopment.
  • What is this West Orchard redevelopment? In 2014, following the General Offer (GO) for Hotel Properties Limited (“HPL”) led by Mr. Ong Beng Seng and Wheelock Properties, we noted the potential for Hotel Properties Limited and Wheelock Properties (SGX:M35) to redevelop their neglected assets along the western end of Orchard Road (from Far East Shopping Center to Tanglin Mall) into a mega-development. See excerpts from our 2014 report in our appendix (in the PDF report attached).
  • With the successful delisting of Wheelock Properties (SGX:M35), we believe it would be easier for Offeror, Wheelock & Co (20 HK), to go ahead with any redevelopment of Wheelock Properties’ assets.

~ ~ Where SG investors share

What does this mean for Hotel Properties Limited?

  • On the back of the heightened possibility that the West Orchard redevelopment is on the horizon, we also see a greater probability of a new General Offer for Hotel Properties Limited.
  • Let’s first look back at the recently concluded General Offer for Wheelock Properties (SGX:M35). At the launch of the General Offer, we noted that perhaps Wheelock & Co (20 HK) saw value in Wheelock Properties’s stake in Hotel Properties Limited above what they were willing to pay. Recall that Wheelock Properties has a S$605.5m investment in associates on the books comprising solely of a 40% interest in 68 Holdings Pte Ltd, which in turn has a 56% stake in Hotel Properties Limited. Through the Wheelock Properties General Offer, 20 HK effectively paid ~S$3.61 per Hotel Properties Limited share, which is close to the current market value of Hotel Properties Limited (S$3.68/share as of 12 Oct). See the details in our 19 Jul report: Wheelock Properties - I'm Un'wheel'ing To Accept.
  • With it now being easier for Wheelock & Co to push through any redevelopment plans and Wheelock & Co already owning close to a 22.5% stake in Hotel Properties Limited via Wheelock Properties, we believe Wheelock & Co and related parties may see greater value in conducting another General Offer for Hotel Properties Limited.

How much would it cost the 68 Holdings to privatize Hotel Properties Limited?

  • 68 Holdings and Ong Beng Seng (and spouse) own 80.1% of Hotel Properties Limited in aggregate. At a 20% premium to last Friday’s closing price, a General Offer by 68 Holdings would need around only ~S$227m to privatize Hotel Properties Limited (i.e. reach a stake above 90%) or ~S$457m should it be able to acquire all of the remaining free float.
  • Hotel Properties Limited’s last close of S$3.68 is currently at a 26% discount to our RNAV which importantly does not include any potential upside from an Orchard redevelopment.
  • In this volatile market environment, we believe investors could benefit from adding counters with high idiosyncratic risk to their portfolios and see Hotel Properties Limited as such a counter.
  • Re-iterate BUY on Hotel Properties Limited.

Deborah Ong OCBC Investment Research | 2018-10-15
SGX Stock Analyst Report BUY MAINTAIN BUY 4.740 SAME 4.740