Will UIC's 4G leader change more than its name?

UNITED Industrial Corp (UIC) is seeking approval from its shareholders later this month to change its name to Singapore Land Group.

In its circular to shareholders, UIC said that "Singapore Land" has a strong historical brand equity within real estate circles.

This proposed name change comes on the heels of a change in leadership at UIC.

Lim Hock San retired as chief executive officer (CEO) and president of UIC on Sept 30, 2020 after 28 years in both roles.

With Mr Lim's departure, Jonathan Eu, the chief operating officer (COO), is now responsible for the operations and performance of UIC.

Time will tell if he will be made CEO and president of UIC.

Mr Eu, who became COO at the start of last year, is already expressing his views on how UIC should position itself.

Notably, he was quoted recently by The Business Times saying that UIC needs to refresh its portfolio of "Grade-A location, but Grade-B quality" assets. The group's key properties include Clifford Centre and SGX Centre in the central business district, as well as The Gateway, Tampines Plaza 1 and 2, and West Mall in the city fringe and suburban areas.

The portfolio refresh has actually already begun with the group's Singapore Land Tower. Green features and a covered walkway to Raffles Place MRT station are part of the upgrade of this 48-storey building, with completion scheduled for end-2023.

UIC holds S$6.2 billion worth of investment properties, primarily office buildings. Rejuvenation is urgently needed given the challenges facing the Singapore office market.

Since April 5, companies have been allowed to bring up to 75 per cent of their staff back to their offices at any one time, up from 50 per cent.

Over the long term, many companies are likely to allow their staff some flexibility to work from home as well as their offices. This could mean less demand for office space in total, and a flight to quality as companies of the future choose the most attractive office digs to pamper and inspire their knowledge workers.

Will The Gateway on Beach Road, which was designed by IM Pei and completed in 1990, be eclipsed by the 770,000 square feet of Grade A office space under development at integrated project Guoco Midtown just across the road?

Mr Eu is the grandson of legendary banker Wee Cho Yaw, who is currently UIC's chairman. With his expanded role at UIC, Mr Eu is arguably the most prominent of the 4th generation of the Wee family to emerge in the corporate scene.

The challenge he faces at UIC is significant. Rejuvenating a large portfolio of commercial properties even as tenants are experimenting with new business models will not only be tricky but require substantial capital expenditure.

In addition, Mr Eu might have to address the issue of UIC's extremely limited free float.

Only 12.6 per cent of UIC's shares is in public hands, just above the minimum 10 per cent free float required for a group to maintain its listing status.

For much of the 2000s, the Wee family was seemingly locked in a tussle for control of UIC with the Gokongwei family from the Philippines.

The matter was settled in June 2018, when UOL Group's stake in UIC crossed the 50 per cent threshold. Wee Cho Yaw's total shareholding interest in UOL is around 37.4 per cent.

Today, UOL owns 50.4 per cent of UIC, while the Gokongwei family's JG Summit owns 37.1 per cent.

Could Mr Eu engineer a deal between UOL and JG Summit to take UIC private?

One possibility is for UOL to take over UIC in a deal where UIC shareholders exchange their shares for new shares in UOL.

JG Summit would then own a stake in a larger and more liquid Singapore-listed property player.

Operationally, having UOL own all of UIC avoids situations where UOL and its subsidiary UIC have to decide who takes part in which project; and with what percentage shareholding in cases of joint ventures.

The big question is how the exchange ratio would be set. UOL is currently trading at close to 0.7 times its book value, while the less liquid UIC is trading at slightly over 0.5 times book.

It is also unclear whether the Wee family would be prepared to see its stake in UOL diluted.

Alternatively, as UIC refreshes its assets, it could prepare some of them for injection into a real estate investment trust, which hopefully trades at close to its book value.

Shares in UIC are up 19 per cent since the beginning of the year. The Straits Times Index is up 12 per cent. UOL, CapitaLand and City Developments are up 0.5 per cent, 15 per cent and one per cent respectively.

As Mr Eu oversees the name change at UIC, many investors will be keen to know what else he plans to change at the group.