Hotel Properties Limited

Kim Eng on 11 Apr 2013

Global hotelier. Hotel Properties Limited (HPL) holds a global portfolio of hotels, investments and residential properties. In Singapore, its prime properties include the Hilton, Four Seasons and Concorde hotels, as well as investment properties along Orchard Road.

Orchard’s demand in its favour. We have highlighted that Orchard Road retail supply is severely limited – only 0.35m sq ft of retail space came on-stream last year and just 0.15m sq ft would be available this year. Our house view is that demand growth for retail space at 2.8% CAGR over 2011-2015 will outstrip supply growth at 2.4% CAGR. With property earnings coming on-stream, HPL could use the capital to revamp its prime assets to raise rental income.

Ong Beng Seng may have to consider raising his stake. While we believe it is more likely there would be a redevelopment of prime assets, we do not rule out the possibility of a privatisation or an increase in stake by Mr. Ong Beng Seng to cement his position as a majority shareholder to avoid any shareholder fights as seen in the case of SC Global.

Wheelock’s position needs to unwind. SC Global’s force of hand to privatise may nudge Wheelock to take a more proactive approach towards its stake in HPL. Keen to avoid any hostile bids or complications in the future, this could be the reason behind Mr Ong’s open-market purchase of 2.2m shares at an average price of SGD3.17/share after Wheelock unavoidably accepted SC Global’s offer last December. If Wheelock starts to increase its stake, we could see movement ahead.

String up assets into a REIT. We reiterate our BUY call on the stock and maintain our TP of SGD3.73, pegged at a 20% discount to our RNAV of SGD4.66/share, which does not account for any revaluation on its overseas assets. Recent rounds of privatisation may continue to stir the pot for deep-asset developers to safeguard their assets so as to avoid any hostile retaliation.