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Privatisation bid for Wheelock could boost other developer stocks

Market, analysts believe S$2.10-a-share cash offer may have to be revised upwards

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Wheelock Properties Singapore, which was incorporated here in 1972 and listed in 1981, owns Wheelock Place and Scotts Square Retail worth S$1.09 billion as of March 31, 2018.


THE Hong Kong-listed parent of Wheelock Properties Singapore has launched a S$600 million offer - at S$2.10 a share - to take the Singapore-listed unit private.

Given that the cash offer is 22 per cent below book value, analysts and investors believe the offer price may have to be revised upwards for shareholders to bite.

On the open market, the shares rose 25.3 per cent to close at S$2.18 on Thursday, which suggests arbitragers are betting on the offer price being raised.

The voluntary offer by Wheelock and Company through unit Star Attraction, which already owns 76.21 per cent of the company, is unconditional. The offer - which is estimated to cost the offeror S$597 million - values the company at some S$2.51 billion, compared with its market cap of S$2.61 billion on Thursday.

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Given depressed valuations for developers and a lack of meaningful expansion by Wheelock in Singapore, the privatisation move did not surprise market watchers.

The timing, however indicates it could be part of a broader reorganisation in the works for the vast Hong Kong family business empire behind Wheelock, following the privatisation of Wheelock Properties Hong Kong in 2010 and the spin-off of commercial assets of Hong Kong-listed Wharf Holdings last year into a separately listed entity Wharf Real Estate Investment Co.

Justin Tang, director and head of Asian research at United First Partners, sees a bigger game plan underway by Wheelock's founding family to restructure its business empire and the potential for a sweetened deal. "The offer price has not been made final, so the offeror has flexibility to adjust the price."

Wheelock and Company said on Thursday that delisting Wheelock Properties will allow it to have more flexibility to manage the business, optimise the use of its management and capital resources, and make any operational changes.

It also noted that privatisation would give the owner and management a "longer time horizon to manage and plan" the company's business.

The pre-market offer announcement also touted the takeover bid as an opportunity for investors to cash out amid low trading liquidity, noting that the average daily trading volume represented just 0.053 per cent of all issued shares over the past year.

Wheelock Properties Singapore, which was incorporated here in 1972 and listed in 1981, owns Wheelock Place and Scotts Square Retail worth S$1.09 billion as of March 31, 2018. Its development properties are valued at S$268.3 million, stated at lower of cost and their net realisable values, mainly from over 30 unsold residential units at the upscale Scotts Square.

Its war chest includes S$423.3 million of available-for-sale financial assets, and a cash pile of S$918.1 million as of end-March. Secured borrowings are a mere S$1.03 million due within five years.

The company's 22.5 per cent stake in Hotel Properties Ltd (HPL) is valued at S$605.5 million, suggesting a carrying value of no less than S$5.16 per HPL share based on its 2014 fair value. HPL closed at S$3.71 on Thursday.

Wheelock Properties Singapore and HPL founder Ong Beng Seng had in 2014 tied up to buy HPL at S$3.50 per share, only to sweeten the offer twice to S$4.05 per share. HPL's net asset value was S$3.89 per share as of March 31, 2018. Given Wheelock Singapore's large cash holdings, recurring income streams and track record of attractive dividends, Lim and Tan Securities said minority shareholders deserve to be paid a higher price and somewhere closer to its last reported NAV of S$2.68 per share.

Already, OCBC Investment Research analysts issued a report on Thursday urging investors to reject the offer. "We believe the offer price of S$2.10 came in at the low end, and it is 10.3 per cent below our fair value of S$2.34."

The OCBC analysts see the potential for HPL and Wheelock to redevelop their neglected assets along the western end of Orchard Road. "We believe that should the privatisation of Wheelock Properties Singapore be successful, the lack of minority shareholders could help smoothen the path towards a West Orchard redevelopment."

Royston Foo, who covers real estate for Smartkarma, said that he found the buyout offer "a compelling one" but noted that the offer price fell below his fair value estimation of S$2.66. "There seems to be room for the offeror to raise its offer price to further entice shareholders to accept the offer," he said.

Mr Foo also pointed to the fragmented minority share ownership as a possible challenge to the offeror reaching the 90 per cent threshold for compulsory acquisition.

Wheelock and Company, however, flagged that the offer price is higher than any closing price since January 2010. It marks a premium of 20.7 per cent over the counter's previous close at S$1.74 on July 13, and is 13.3 per cent over the shares' 12-month volume-weighted average price.

Various stock watchers have been eyeing a potential buyout of the company for some time. Back in June 2017, Phillip Securites analyst Peter Ng had called Wheelock Properties a "prime privatisation candidate".

Credit Suisse property analyst Louis Chua noted that the potential delisting of Wheelock Properties Singapore is a continuation of the trend of developer privatisations in Singapore, given the "disconnect between public versus private asset valuations".

"We expect investors to revisit the privatisation theme amongst existing listed developers, thus lifting valuations from current depressed levels," he said.

Already, trading interest was revived for developers that appear ripe for the picking on Thursday. Shares of Wing Tai Holdings rose 3.9 per cent to S$2.11, GuocoLand climbed 2.7 per cent to S$1.91 and Bukit Sembawang Estates rose 4.3 per cent to S$5.63.

The deadline for Wheelock's offer has not been announced, but DBS - the financial adviser to the offeror - said the earliest expected closing date will be Sept 7.

The offer document will be sent to shareholders within two to three weeks. The Wheelock Properties board will also appoint an independent financial adviser to advise its independent directors, and their advice and recommendations will be shared with shareholders in a forthcoming circular.

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