Seven years after he first decoupled his Hai Sun Hup Group into Singapore Shipping Corporation (SSC) and Stamford Land Corporation

Seven years after he first decoupled his Hai Sun Hup Group into Singapore Shipping Corporation (SSC) and Stamford Land Corporation, and less than a year after decoupling SSC’s logistics operations, Cougar Logistics Corporation, former tongkang operator Ow Chio Kiat is feeling itchy again.

He recently told shareholders he was thinking of putting all his hotels into a real estate investment trust (Reit) to bring about better shareholder value.

Mr Ow has proved more than once that he is able to unlock shareholder value. Before he separated Hai Sun Hup in 2000 into its marine-related businesses under SSC and property under Stamford in 2000, the market capitalisation of the single listing was about $216 million. SSC was worth just about $200 million before Cougar was spun off.

Today, the combined market capitalisation of the three listed companies is over $800 million, and this year they distributed over $100 million to shareholders. But if you ask Mr Ow, he will say that the group is still undervalued.

Not true value

Stamford Land, with a market capitalisation of over $500 million, at present has seven hotels in Australia and one in New Zealand which are not reflecting their true value since, under current accounting rules, this has to be depreciated.

The hotels in Sydney, Melbourne, Adelaide, Brisbane and Auckland are among the best in Australia and have won numerous accolades there and from abroad. Yet, because of strange accounting rules, shareholders cannot really comprehend their true worth.

The eight hotels - five purchased in the mid-1990s and the remaining three in 2000 - were bought for a total consideration of about A$480 million. Their book value after depreciation is now about A$388 million (S$504 million) and still heading south.

In a Reit, properties are revalued annually and the same hotels could now be worth A$700-800 million, allowing unit holders a better grasp of their assets.

Putting aside their capital appreciation, shareholders will still reap significant gains from the appreciation of the Aussie dollar, which was around S$1.05 in 2000 and is now hovering around S$1.30.

However, for shareholders to gain the full benefits of a Reit, Stamford wants to acquire a property in Singapore. It could then maximise its borrowings, and as the interest expenses can be offset against Australian hotel profits, benefits would be significant. Through efficient tax management, the Reit company will be able to optimise its returns.

Stamford recently bid $200 million for the 398-room Novotel Clarke Quay but was pipped by Kwek Leng Beng’s CDL Hospitality Reit, which offered a million dollars more and assumed debts totalling $18.8 million.

Although disappointed with the outcome of its initial foray into the local property market, Stamford - which has a cash hoard of around $80 million - is still on the lookout for a prime hotel property here.

For Stamford, putting its hotels into a Reit will make it asset-lighter, but hopefully with plenty of cash from listing the Reit to enable it to expand further into property development in

Australia and New Zealand. The plans are for it to retain a substantial stake in the Reit.

At present, Stamford has several high-end properties under development. This year, it is expected to book the profits from the sale of its remaining 22 residential units at its Stamford Marque in Sydney. As at yesterday, there was only one apartment left for sale. In the last financial year, it sold 61 units for pre-tax profit of $13.6 million and $85.2 million in revenue.

Choice site development

It is now developing another choice site near The Rocks - Sydney’s old town quarter. The dev which will be launched in the third quarter of this year, will comprise 129 apartments with a total saleable area of 17,360 sq m and 1,474 sq m of commercial space. Other developers are said to have offered double the A$22 million Stamford paid three years ago for the site.

In Auckland, the Albert Residences, comprising 149 residential units above the Stamford Plaza hotel, are expected to bring in much riches as there was no land cost or foundation-laying costs involved.

And in the hot office market of Perth, the company is building a 14-storey office block in the city centre, with a lettable area of 14,000 sq m.

Also, it is still looking for other choice development sites in the key cities of Australia. With all these things going on, Stamford Land is worth another look.

Source: The Business Times, 19 June 2007