HPL needs to articulate how it will use the SPH platform to bolster its performance

TYCOON Ong Beng Seng, popularly known by his initials OBS, is credited as being one of those responsible for first bringing the Formula 1 night race to Singapore. He also led a consortium, 98 Holdings, which involved entities of Temasek Holdings, that won control of steel marker NatSteel, following a battle with business tycoon Oei Hong Leong between 2002 and 2003.

OBS is adding a new feather to his cap.  Cuscaden Peak won the takeover battle with Keppel Corporation for Singapore Press Holdings (SPH).  SPH’s shareholders voted in favour of Cuscaden’s takeover offer at a scheme meeting on Mar 22, 2022, and SPH is set to be delisted on May 13, 2022. 

Cuscaden is 40 per cent held by Tiga Stars, which is in turn 70 per cent owned by (HPL) and 30 per cent owned by OBS’ Como Holdings.  Stakes of 30 per cent each of Cuscaden are held by entities of Temasek unit CLA Real Estate Holdings, and Temasek-owned Mapletree Investments.  CLA owns privately-held CapitaLand and is the biggest shareholder of CapitaLand Investment .

OBS is the managing director of HPL, in which he holds a direct interest of 21.1 per cent and a deemed interest of 39.4 per cent, based on the latest annual report.

OBS appears to be a shrewd player in contested takeovers in Singapore.  But HPL’s shareholders may wonder why the group wants SPH — which is being acquired at above book value in a deal that values SPH at around S$3.9 billion — and what it plans to do with SPH. 

As HPL has been struggling recently, should it embark on its SPH foray?  Is buying SPH part of a major strategic transformation plan for HPL, or is it an opportunistic exercise to buy assets to resell for a quick profit? 

HPL’s recent performance

HPL is an owner and operator of hotels as well as a niche property developer and owner.  The group owns hotels, resorts and shopping galleries in 15  countries. 

Amid the havoc wrought by the Covid-19 pandemic on the hospitality sector, HPL reported loss attributable to shareholders of S$177 million in 2020 and S$8 million in 2021.  For 2021, the hotels segment was loss making, while the properties segment was profitable.

Dividend per share for each of 2020 and 2021 was 4 Singapore cents, down from 10 Singapore cents for each of 2017 and 2018.  Equity attributable to shareholders of S$1.69 billion as at end-2021 is down from S$1.79 billion as at end-2016.

Perhaps HPL’s shareholders may prefer that management focuses on improving operating performance instead of buying a sizeable new business.

There is much uncertainty over the strength and speed of recovery for the hospitality sector. Operating costs may rise amid higher inflation.  Significant capital expenditure may be needed to ensure the hotels and resorts are competitive. While HPL owns award-winning hotels and resorts, can the profitability of its hospitality business rebound strongly?

Perhaps more moves such as the recently announced sale by HPL’s 80 per cent-owned joint-venture company of its stake in an entity that owns Hilton London Olympia in the United Kingdom for a gain of about S$29 million for the group can drive stronger financial performance for HPL.

Pivoting away from hospitality

SPH could, in fact, be a crucial part of the jigsaw for HPL.  Possibly, Cuscaden Peak’s acquisition of SPH will help HPL pivot away from hospitality and provide shareholders with steadier recurrent earnings from retail and student-housing assets. 

Profit before tax for the financial year ended Aug 31, 2021 at SPH’s retail and commercial property segment and student-housing segment were S$207 million and S$72 million, respectively.  SPH held S$6.5 billion of investment properties as at end-August 2021, of which retail-led properties and student housing assets contributed 74 per cent and 23 per cent respectively.

HPL’s partners in Cuscaden Peak also have deep skill-sets in areas such as commercial property development and real estate fund management. Perhaps, CLA and Mapletree can extend their co-operation with HPL to help it transform its Orchard Road assets.

There has been speculation for years that HPL could undertake a mega development involving prime Orchard Road plots, which have a total land area of over 200,000 sq ft.  These land plots house the newly rebranded voco Orchard Singapore Hotel, Forum The Shopping Mall, HPL House and Four Seasons Hotel Singapore.

Perhaps, HPL, working with the right partners, could create a new mega landmark development that excites users and generates healthy financial returns.  Upon completion, the development or parts of it can be injected into a real estate investment trust such as SPH Reit, which owns Paragon in Orchard Road, or a private fund.

Connectivity to the locale will improve when the Orchard and Orchard Boulevard stations on the Thomson-East Coast Line open.  But competition in the area is heating up, with big strata-held developments slated for redevelopment post successful collective sales.  An entity of the Tanoto family bought Tanglin Shopping Centre in the Orchard Road area for S$868 million earlier this year and wants to create an iconic development.

As flight to quality plays out in commercial and hospitality property properties, HPL may need to do more to revamp its Orchard Road assets so that they can draw space users. 

In responding to queries raised by shareholders ahead of its annual general meeting on Apr 28, 2022, HPL said Cuscaden Peak's consortium members will undertake a review of SPH’s businesses and operations as well as evaluate strategic options and potential corporate actions. This may include the re-organisation of certain of SPH’s assets over time.

HPL needs to ride on the reopening of international travel to drive better performance of its hotels and resorts, as well as integrate the SPH platform and extract value from it.  It also needs to clearly articulate plans for the SPH platform soon.