Wheelock Properties' privatisation bid revives missed chances in West Orchard

The general offer is translating to a payment of $3.61 per share for an associate linked to West Orchard.

The general offer of Wheelock & Company’s (20 HK) subsidiary Star Attraction Limited for Wheelock Properties Singapore (WPS) at $2.10 exceeds the highest closing price of the shares since 22 January 2010 and represents a 20.7% premium over the last transacted price prior to the announcement, OCBC Investment Research said.

OCBC Investment Research analyst Deborah Ong added that the offer implies a Price/NAV of 0.78x and an ex-cash Price/NAV of 0.70x. The offer also allows Star Attraction to purchase WPS’s portfolio of largely investment assets at a ~30% discount.

However, WPS has a $605.5m investment in associates on the books. This comprises solely of a 40% interest in 68 Holdings Pte Ltd, which in turn has a 56% stake in Hotel Properties Limited (HPL).

“In other words, WPS’ stake in HPL is carried at ~$5.16 per share on the books. Given the 0.70x ex-cash P/NAV implied by the offer price, we see 20 HK as effectively offering to pay ~$3.61 per HPL share, which is close to the current market value of HPL,” Ong said.

Ong noted that it is possible that 20 HK sees further value beyond the current market value of HPL – in particular, a higher probability that the West Orchard redevelopment is finally within sight.

During the time of the general offer for HPL led by Ong Beng Seng and WPS in 2014, OCBC Investment Research noted the potential for HPL and WPS to redevelop their neglected assets along the western end of Orchard Road (from Far East Shopping Center to Tanglin Mall) into a mega-development.

“We believe that should the privatisation of WPS be successful, the lack of minority shareholders could help smoothen the path towards a West Orchard redevelopment,” Ong said.

Additionally, the brokerage’s fair value estimate of $2.34 for WPS is 11.4% higher than the offer price is 11.4% and 7.3% higher than $2.18, the closing price of the morning of 19 July 2018.

“Due to the low liquidity of the stock, we find it possible that the unconditional offer may not easily pass the 90% threshold upon which acceptance of the offer by minority shareholders is compulsory,” Ong said. Based on their sensitivity analysis, should Star Attraction raise the offer price up to $2.90, the difference between the new and the original price could range from 5% to 28%.

Overall, Ong is unsurprised by the offer. “WPS traded at low P/B valuations, has a majority shareholder, and possesses a net cash position,” she said.