2nd Liner Prop Stocks

Sieving through the offer document for HPL, some of the valuations of the company’s assets look much lower than what I would expect. Shareholders will have to decide if these valuations are indeed fair.

Here are just some valuations which seem to be rather low, in my opinion:

1. Hilton Hotel is valued at $530m, or $1,238 psf of GFA while Four Seasons Hotel is valued at $365m, or $974 psf of GFA. Both are FH properties. As a comparison, Oxley Holdings’ redevelopment of Pine Tree Club at Stevens Road (not as prime, and leasehold 103 years) has a GDV of $1.023b, or $3,215 psf of GFA. Opposite Hilton Hotel is also Hong Fok’s new hotel project, which is valued at $3,768 psf of GFA (based on $650m GDV).

Assuming that HPL later redevelops both hotels and achieve a GDV of $3,500 psf of GFA, this implies a new valuation of $2.8b for the 2 sites. Further assuming a redevelopment cost of $600m, this means that the total “cost” to HPL is $895m (the 2 sites’ current valuation) + $600m = $1.495b vs the new GDV of $2.8b, giving a surplus value of $1.3b or $2.52 per share.

Even assuming that Hilton Hotel is not redeveloped, it is still quite undervalued in the report, at $1.253m per room. Note that the hotel has a large shopping atrium. Stripping that out would mean per key of less than $1m for Hilton Hotel. My estimate is that $1.5m per key would not be over-valuing the hotel.

2. Meanwhile, Concorde Hotel is valued at $243m, or only $597,000 per room. Although the remaining lease is about 64 years, the valuation is still too low. Global Premium Hotels recently valued its rooms at about $600,000 per key – and its rooms are 3 star or below (although FH, they are in poorer locations). Also, I believe nearby Mandarin Orchard was recently valued at $1.12m per key despite it having only 44 years of lease remaining. $597,000 per key for Concorde thus seem glaringly low by comparison.

Assuming a fairer $1m per key for Concorde then throws out another valuation surplus of $164m, or 31ct per share.

3. Using similar maths (as Hilton & Four Seasons) for Forum shopping mall and assuming it would be redeveloped, one can then add another 40ct to the surplus.

4. From assessing these 4 hotels/mall alone, I then get a $3.23 additional valuation for these assets than what the report values them at. I then add this to the $5.24 value in that report, giving me a new adjusted valuation of HPL of $8.47. Note that I am not even looking at the possible undervaluation in its other assets as well as a possible sale of the Anguilla car park site and HPL clinching it.

Unfortunately, the above figures are just “figures”. Minority shareholders cannot do much in most takeover situations, except hoping for another party to notice what we see and take an interest in the saga.

However, there is perhaps one way for us to partake in the cheap sale of HPL – through buying joint-bidder Wheelock. If HPL is indeed worth more than $8, then Wheelock will benefit substantially from this takeover exercise, since it will be increasing its stake in HPL at a low price.

Recall recently that Hiap Hoe also saw its share price rise on taking over Superbowl, as holders of SB shares moved their sale proceeds into Hiap Hoe shares. So perhaps those who exit HPL will later switch to Wheelock to continue having an exposure to scarce freehold Orchard land.

In addition, Wheelock is also a potential privatization stock. If it is getting HPL cheap, Wheelock’s parent company then has a better reason to take its baby private.

Given the share buyback in the recent weeks, Chip Eng Seng could be planning to absorb more shares. The price is holding at 76 cents ...Nice .....Just wonder what their limit is. 80 cents?

Hi Big Fish, you may be interested to know that I had created some time ago a separate thread for "Chip Eng Seng" (migrated from the earlier header "Guess which SG developer plans to build this Down Under"). You may want to follow writings posted on that thread on CES.

But you are right, CES' share buybacks have been rather consistent this round, with a total of 5m shares bought back since 15 May 14. Over the years, the co has bought back 27m shares. Shareholders have not only been receiving consistently high dividend payouts, but also seen their stake in the company rising as a result of the buybacks.

Meanwhile, another forumer Yeng had written a bit on Heeton in the old thread "Guess which developer...". Yeng may like to know that I have commented a bit about Heeton now and then under this thread "2nd liner prop stocks".

Heeton announced these few days the set up of subsidiaries which may be an indication of new ventures in Singapore and Australia. Will await news on these fronts.

At Pollux, full year profits announced recently were disappointing. I am not sure if this is due to the higher costs of marketing its units (it appears to have used "expensive" selling methods, based on my observation) or a simple mismatch of costs and expenses.

I am still hopeful that its main winner - Pavilion Square - will contribute greatly to profits in the coming 2 years, and hope that the company is indeed poised for interesting corporate developments after its recent board changes.

Perhaps the coming AGM will shed more light on the company's developments and financials.

At Hiap Hoe, the company has named its maiden project in Melbourne's Docklands "Marina Tower Melbourne". It will be building a 269-room hotel and a 461-unit residential block. Another 350-room hotel and 658 apartments will spring up from its Lonsdale project. Hiap Hoe will soon become one of the bigger plays on Aussie property market. These are the links:

www.hiaphoe.com/marina-tower-melbourne

www.hiaphoe.com/380-lonsdale-street-melbourne

If demand for Aussie properties and hotels continue to be good, perhaps a new theme on Aussie play may emerge. If so, the stocks that may catch investors' attention are: Fraser Centrepoint, Hiap Hoe, Aspial, Stamford Land, Tuan Sing, Ho Bee, etc.

if Goldman Sachs report yesterday is right, then there's downside for those holding physical properties and stocks:

"We expect a gradual 15% correction in prices over the next 2-3 years and vacancy rising to 8.4% in 2015E from 6.2% in 2013 as the property market undergoes a structural demand-supply shift, with the TDSR framework an effective hurdle for a sizeable group of home buyers.

"We think it is premature to discuss policy easing as private home prices are only 2% off the recent peak in 3Q13, having risen 89% since the start of the upcycle in 2005. We maintain our preference for commercial over
residential exposure; Buy CapitaLand and UOL; Sell City Developments."

sumer wrote: Sieving through the offer document for HPL, some of the valuations of the company’s assets look much lower than what I would expect. Shareholders will have to decide if these valuations are indeed fair.

Here are just some valuations which seem to be rather low, in my opinion:

1. Hilton Hotel is valued at $530m, or $1,238 psf of GFA while Four Seasons Hotel is valued at $365m, or $974 psf of GFA. Both are FH properties. As a comparison, Oxley Holdings’ redevelopment of Pine Tree Club at Stevens Road (not as prime, and leasehold 103 years) has a GDV of $1.023b, or $3,215 psf of GFA. Opposite Hilton Hotel is also Hong Fok’s new hotel project, which is valued at $3,768 psf of GFA (based on $650m GDV).

Assuming that HPL later redevelops both hotels and achieve a GDV of $3,500 psf of GFA, this implies a new valuation of $2.8b for the 2 sites. Further assuming a redevelopment cost of $600m, this means that the total “cost” to HPL is $895m (the 2 sites’ current valuation) + $600m = $1.495b vs the new GDV of $2.8b, giving a surplus value of $1.3b or $2.52 per share.

Dear Sumer,

I am curious know how did you derive the no. as I did some calculation on my own and the valuation of GFA for Hilton Sinapore and 4 Seasons hotel are quite different from mine.

Could you also enlighten us on how did you managed to get the valuation for Hong Fok and Oxley development?

Thanks so much!

I got my info from:

scholarbank.nus.edu.sg/bitstream/handle/...tails.pdf?sequence=6

Base on GFA of 23690.2sqm for Hilton S'pore, Hilton S'pore is valued at $2078.44psf.

Base on GFA of 25673.6sqm for 4 Seasons Hotel, 4 Seasons Hotel is valued at $1320.8psf

Hi Valueseeker,

The GFA for HPL's 2 hotels are taken from the Offer documents: pages A8-13 and A8-14. The GFAs are higher than what you would expect from using land area X plot ratio. Perhaps it's because of the "+" in the "4.9+" plot ratio for the area. Somehow the 2 hotels managed to get a huge "+" when they were built. That should be kept in any redevelopment of the sites, I believe. I had a slight typo area for the GFA for Four Seasons' figure, but it's not material.

Oxley's Pine Tree site figure is taken from the company's report posted on SGX website:

infopub.sgx.com/FileOpen/Oxley_Circular_...spectus&FileID=16042

I cannot trace where I got the figure for Hong Fok's site, but will try to find it for you later today or tomorrow, as I have a busy day ahead.

Hope the above helps.