For the year ended December 31, 2012, the Group achieved a revenue of $542.8 million, which is 10% higher than the $493.8 million recorded last year. The increase was mainly attributable to income recognition from the Tomlinson Heights condominium development on percentage of completion basis as well as better performances by the Group's hotels and resorts, especially those in Singapore and the Maldives. The Group's share of results of associates and jointly controlled entities has also improved significantly from $33.1 million for year 2011 to $52.6 million for the year ended December 31, 2012, mainly due to higher profit recognized from The Interlace condominium development at Alexandra Road, Singapore, and d'Leedon condominium development at Farrer Road, Singapore. During the year under review, the Group has made investments in various new associates and jointly controlled entities including Bilila Lodge, Tanzania, which had recently been reflagged as Four Seasons Safari Lodge Serengeti, Gili Lankanfushi, Maldives, Westcliff Hotel, Johannesburg, and a property at Old Burlington Street, London. This has attributed to the increase in Associates and jointly controlled entities balance in the Group's Statement of Financial Position.

 

Group profit before tax and fair value changes in investment properties for the year ended December 31, 2012, was $131.9 million compared to $91.9 million last year.

 

The global economic outlook remains uncertain. Competitive pressure on room rates and escalating operating costs are also some of the challenges expected for the Group's hotel business. The Group will continue its strategy of owning and operating hotels and resorts under strong hospitality brands and in diversified locations. On the property front, the Singapore market has been dampened by the series of cooling measures implemented by the government. Nevertheless, the demand for quality developments in good locations is expected to be sustainable, especially from first-time local buyers.

 

The Board of Directors has recommended a first and final one-tier tax exempt cash dividend of 4 cents per ordinary share, and a one-tier tax exempt special dividend of 3.5 cents per ordinary share, in respect of the current financial year reported on. Payment of the said dividend is subject to the approval of shareholders at the forthcoming Annual General Meeting.

But even setting aside the re-valuation proposition, there are two more potential scenarios for HPL.

 

HPL’s properties - comprising its two prime hotels, Forum and HPL House - sit on a 2-hectare tract of land straddling the prime Orchard Road belt. At the western tip stands Wheelock Place, owned by the Wheelock group which controls 20 per cent of HPL. Also, there is the Anguilla Carpark, which sits between Four Seasons Hotel and Wheelock Place.

 

There has long been market speculation that at some point in time, sleepy HPL will stir from its slumber and look at redeveloping its Orchard properties. Such a redevelopment master plan could envisage the tearing down, relocation and rebuilding of all the existing HPL properties on Orchard Road into a contiguous lifestyle, shopping, hotel and residential development stretching from Cuscaden Road to Anguilla Park. Analysts estimate that such a redevelopment would yield a gross floor area of more than 1 million square feet and a market value well in excess of $2 billion, or $4 per share.

 

But HPL has shown little inclination so far to do much more than sit patiently on its precious assets.

 

However, market circumstances in Singapore have changed dramatically over the past decade. Today, Singapore is much more cosmopolitan and crowded. Could that prompt a strategy rethink within the company?

 

If not, there is always the potential that its elusive controlling shareholder, Ong Beng Seng (who together with his family owns 45 per cent), could initiate a privatisation of the company. Another 41 per cent is tightly controlled by another 20 shareholders, including 20 per cent held by Wheelock group.

 

The latter certainly has enough cash to support a privatisation. Privatisations have been the rage lately for undervalued, under-appreciated and tightly controlled companies.

 

Given the fast-evolving market conditions, the folks running HPL will have to decide - sooner, rather than later - what to do about its hugely undervalued but precious assets. Mr. Ong is one of Singapore’s - if not the world’s - most savvy and best-connected businessmen. When he makes his move, the market will move with him.

 

 

Spotlight falls on low-profile Hotel Properties

 

Ven Sreenivasan

 

15 September 2012

 

The recent successful listing of Far East Hospitality Trust (FEHT) - which attracted a subscription rate of over 30 times - has thrown the spotlight on the somewhat low-profile and under-researched Hotel Properties Ltd (HPL).

 

In a July 12 Maybank-Kim Eng report, analyst Alison Fok noted that Orchard Parade Holdings’ spin-off of Orchard Parade Hotel into Far East Hospitality had yielded a gain of $702 million for the listed entity. Turning to HPL’s own significant asset holdings - including two prime hotels in the Orchard Road belt - her report concluded that there was a huge “undervaluation of HPL’s assets in the Orchard Road area”.

 

Not surprisingly, activity in HPL’s stock has picked up significantly, with the counter now surpassing Ms Fok’s own target price of $2.75.

 

FEHT effectively encapsulates Far East group’s assets worth some $1.5 billion, re-valuing its 388-room Orchard Parade Hotel, which has a lease of 50 years, at $1.1 million per room key.

 

HPL’s own properties include the freehold Hilton Hotel, the 999-year leasehold Four Seasons Hotel and the 99-year leasehold Concord Hotel. Its other properties include the freehold Forum mall next to the Hilton, HPL House and Ming Arcade at Cuscaden Road, and the Concorde Shopping Mall. On the residential front, there is the 36-storey Tomlinson Heights, and shares in The Interlace and d’Leedon. It will soon be launching Beverly Mai, which was bought some six years ago. It also has about two dozen other good-class properties, comprising predominantly hotels, in Malaysia, Maldives, Thailand and Indonesia.

 

HPL has never re-valued its books to account for the appreciation of its properties, which were mostly bought in the 1980s and 1990s.

 

The FEHT restructuring and listing valued Orchard Parade Hotel at $1.1 million per room key. Applying a conservative 20 per cent premium to this valuation - to account for the fact that HPL’s hotels have much longer leases - would yield a valuation of $1.32 million per room key. Applying this to its three Singapore hotels - comprising 1,083 rooms - would place their value at about $1.43 billion.

 

HPL carries the three hotels in its books for some $440 million, or about 28 per cent of the value of total assets. So a revaluation would give HPL a potential realisable one-off gain of almost $1 billion.

 

As at June 2012, the net book value per HPL share was $3.08. Going by the current market prices, this should be at least 2.5 times higher, at $7.70 per share.

 

The under-valuation is glaring.