Complete Property Market Updates of Singapore

March 31, 2008

Waking up to the value of Stamford Land

Filed under: General — Propertymarketupdates @ 1:20 am

SAVVY investors appear to have begun to recognise that mainboard-listed Stamford Land is a very much undervalued stock, as the price of its shares surged 17 per cent yesterday to 52.5 cents apiece. Earlier, they had been traded to a high of 55.5 cents a share.

This followed its announcement last Thursday that it had terminated an exclusive agreement with a prospective buyer who had made an unsolicited offer of A$850 million (S$1.06 billion) for the group’s portfolio of eight hotels – seven in Australia’s key cities and one in Auckland, New Zealand.

It did not name the buyer but said it was a ’substantial public group with a diversified international portfolio of investment and residential properties and hotels’.

Stamford said it had entered into an exclusive agreement with the prospective buyer ‘as the offer of A$850 million was at an acceptable valuation and offered an option to unlock shareholders’ value’.

Yet at the same time Stamford said it was not keen to sell and had demanded an ‘unusual and onerous non-refundable deposit’ of A$1.3 million. Its founder and single largest shareholder Ow Chio Kiat explained his reluctance to part with the hotels: ‘I feel very passionate about my hotels because I chose and built the portfolio up myself since 1994.’

The company also noted that: ‘The hotel portfolio with a total net book value of approximately A$382 million, has always been the Group’s core business, producing a steady stream of recurring income. Due to the high and continually rising cost of hotel development in Australia and New Zealand, the Group will not face much competition as there is unlikely to be an oversupply of room stock in the foreseeable future.’

The hotels in Sydney, Melbourne, Adelaide, Brisbane and Auckland are among the best in Australia and have won numerous accolades there and from abroad. The hotels – five purchased in the mid-1990s and the remaining three in 2000 – were bought for a total consideration of about A$480 million. Yet, because of strange accounting rules, shareholders cannot really comprehend their true worth, and as they have to be depreciated annually, their book value is still heading south.

But Mr Ow, who started life as a bumboat operator, seems to be in no hurry to sell as there appears to be no shortage of suitors. The company has disclosed that it has received ‘approaches from other parties for the purchase of the Group’s hotel portfolio’.

According to one observer of the stock, Stamford’s rooms in the books are valued at about A$237,000. By comparison, the Orchard Fund recently purchased the Diamant Hotel in Sydney at a cost of about A$390,000 a room, while the Sheraton Noosa Hotel near the Gold Coast went to other buyers for A$535,000 a room, and the Park Hyatt Sydney was sold at a whopping A$1.25 million a room.

Mr Ow has also been talking of placing the hotels in a real estate investment trust (Reit), where properties are revalued annually.

The company also has a profitable property development arm which is into high-end residences.

Commenting on its property development arm, which leverages on the Stamford brand name and is not part of the recently proposed sale, the company said: ‘This aspect of the development and sale of luxury apartments has done well and will be further expanded upon. Currently, the property development portfolio includes The Stamford Marque in Sydney; The Stamford Residences and The Reynell Terraces in The Rocks, Sydney; The Stamford Residences in Auckland; and a commercial development in Perth.’

At the price ascribed by the just- snubbed buyer of the hotels, net of long-term debts of about $314 million, the company, which has a cash hoard of over $70 million, would have had $800 million in cash or about 94 cents a share.

The property development arm is said to be worth about another 20 cents a share, giving the company a total value of about $1.14 a share.

Yet, despite yesterday’s price spike, the shares were going for less than 56 cents each, and at the closing price of 52.5 cents, Stamford was worth only just over $450 million. A bargain, it appears.

Source : Business Times – 25 Mar 2008

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