4 reasons why SingLand is undeserving of UIC's $9.4 per share offer

The offer is just too unattractive.

According to OSK DMG, in a long-anticipated move, United Industrial Corporation (UIC) recently announced an unconditional cash offer for its 80.4%-owned subsidiary Singapore Land (SingLand).

The latter owns a sizable portfolio of prime office properties with NLA totaling 2.1m sqft, including Singapore Land Tower, Clifford Centre, The Gateway and SGX Centre 2. 

Here's more from OSK DMG:

In addition, it owns stakes in shopping malls and, through, Marina Centre Holdings (MCH), controls Marina Square and the hotels in the Marina belt.

Singland is arguably the crown jewel within the UOL Group given its asset-rich portfolio and a successful privatization would pave the way for further consolidation of UIC into UOL Group. This, we think, is the end game-plan for the Wee family.

Offer price is unattractive. We think UIC’s offer price is unattractive against our estimate of Singland’s RNAV of SGD14.50/share, implying a steep discount of 35%. While the offer is in-line with the trading discount of real estate developers, SingLand deserves a premium over its peers in the real estate sector as:

1) Substantially all of its assets are in the office, retail and hotel sectors, which tend to generate steady recurring income as compared to the more lumpy property development segment, which currently makes up a small part of SingLand’s RNAV. Operating risk is much lower as a landlord.

2) SingLand’s large portfolio of prime real estate properties include Singapore Land Tower, Clifford Centre, The Gateway, SGX Centre 2 and the Marina Square hotels and retail complex. Investment properties with good rental streams, such as SingLand’s, are highly marketable assets as they can be packaged into REITs and sold at close to market value.

3) SingLand’s hotels, held via MCH, are carried at book cost of around SGD300,000 per key, against our conservative estimate of SGD 900,000 per key. Marked to market, this would generate a surplus of SGD391m, or SGD0.95/share.

4) UOL Group has been streamlining its operating units, and last year privatized its 82%-held hotel arm, Pan Pacific Hotels Group, at near RNAV. The offer for SingLand, at 35% discount to RNAV, is deeply discounted when its asset backing, balance sheet strength and a strengthening office cycle is taken into consideration.