How UOL can optimise Negara

Singapore Companies
Published June 26, 2006


NEWS ANALYSIS
How UOL can optimise Negara
Commercial, residential project may be way to extract best value


By KALPANA RASHIWALA



UOL Group'sacquisition over the weekend of United Overseas Bank group's 54.5 per cent stake in listed Hotel Negara for $73.3 million and ensuing takeover offer sets the stage for UOL to unlock the value of the Hotel Negara site at Claymore Road by redeveloping it.


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Building challenge: A better chance of getting a higher plot ratio is to go the way of neighbour Orchard Towers


Just how much value it can unlock from the 39,328 sq ft freehold site will depend on what the property group redevelops it into.

In June 2003, when Hotel Negara attempted to sell the site, it was stated that it could be redeveloped into a residential project with a 2.8 plot ratio (ratio of potential gross floor area to land area) and 36-storey height limit.

Assuming UOL manages to take full ownership of listed Hotel Negara - whose main asset is the hotel at Claymore Road - at $6.45 per Hotel Negara share, its total cost for buying 100 per cent of the company's equity would work out to $134.5 million.

After adding to that Hotel Negara's borrowings of $14.8 million as at Dec 31, 2005 and deducting the company's only other key asset - available-for-sale financial assets of $7.5 million as at the same date - the value of the Claymore site comes up to $141.8 million.

Based on a 2.8 plot ratio residential development scheme, the land value based on UOL's acquisition price works out to a hefty $1,287 per square foot of potential gross floor area. This would be a new record for residential land in Singapore.

And the estimated break even cost for a new condo of around $1,800 psf would leave a thin profit margin for UOL, assuming a new condo on the site may fetch $1,800 to $1,900 psf on a project-average basis today.

However, UOL could try to extract more value from the site.

It could apply for a higher plot ratio for a residential development, pointing to recent precedents.

For example, a 4.2 plot ratio was granted recently for a residential project on the Hotel Asia site on Scotts Road.

Such an argument may or may not work in the case of Hotel Negara, given that nearby residential sites have 2.8 plot ratios under Master Plan 2003.

UOL may stand a higher chance of success in clinching a higher plot ratio by looking at Orchard Towers next door.

The property is associated with karaoke pubs, night clubs and the like. But it is also zoned for commercial and residential use with a 4.9 plot ratio under Master Plan 2003.

The Hotel Negara site is zoned for hotel use, also with a 4.9 plot ratio, and since it is longer safeguarded for hotel use, UOL may seek the planning authorities' permission to redevelop it for other uses.

Instead of doing a pure residential development as indicated in the past for the plot, UOL could apply for a commercial and residential project with 4.9 plot ratio, since this is already allowed for the adjacent Orchard Towers.

This could allow UOL to do a small office, home office (Soho) or some other commercial/residential development on the site. The developer seems to have taken to such mixed development schemes of late - for example, its redevelopment of Eng Cheong Tower near Lavender MRT Station into a Soho and apartment project named Southbank, and of the former UOL Building near Somerset MRT Station into a commercial/residential development.

Projects like these not only add vibrancy to the city with their dual live and work elements but could help ease the impending tightening of office supply in the city.

Of course, UOL will have to pay a development charge if it embarks on a commercial/residential scheme for the Hotel Negara site. But even after factoring this in, its unit land price would be much lower if it bags a higher plot ratio of 4.9 - compared with the $1,287 psf per plot ratio based on 2.8 plot ratio.

UOL's acquisition of Hotel Negara may yet prove to be a highly profitable one.

Singapore Companies
Published July 18, 2006


UOL's offer for Hotel Negara fair: ING Bank
$6.45 offer price a significant premium over stock's NTA


By LESLIE YEE



ING Bank says the cash offer by UOL Group for Hotel Negara at $6.45 per share 'is fair from a financial point of view'.


ING is the independent financial adviser to the independent directors of Hotel Negara - Jimmy Seet, Kau Jee Chu, Kho Piac Suat and Goh Kian Hwee - with regards to UOL Group's takeover bid.

ING recommends shareholders to accept UOL Group's offer unless they can obtain a price higher than $6.45 per Hotel Negara share by disposing their shares in the open market, taking into account transaction expenses. Hotel Negara's independent directors said they agree with ING's recommendation.

In a letter dated July 15, ING noted that the offer price by UOL Group 'represents a significant premium of 132.9 per cent over the latest unaudited net tangible asset of $2.77 per Hotel Negara share as at 30 June 2006'.

ING said the premium is significantly higher than the mean and median premium of other recent hotel company transactions. The mean figure was about 34.6 per cent and the median was about 32.8 per cent, the bank said.

ING said UOL Group's offer price represents a premium of 25.7 per cent over the revalued net tangible asset per Hotel Negara share based on the redevelopment potential of the company's site at 10 Claymore Road being turned to residential use. ING added that the premium of the offer price over revalued net tangible asset per Hotel Negara share would be 46.2 per cent if the site was redeveloped for commercial and residential use.

UOL Group entered agreements in late June to purchase shares in Hotel Negara from United Overseas Bank, Overseas Union Holdings, Overseas Union Insurance and Overseas Union Facilities, giving it a 54.5 per cent interest in Hotel Negara, thereby triggering a mandatory conditional offer for the remaning shares of Hotel Negara.

UOL Group's offer for Hotel Negara closes at 3.30 pm on Aug 11. In the offer document issued earlier, it was stated that UOL Group does not intend to extend the offer period. It also stated that UOL Group will not revise the offer price.

The offer document also said that UOL Group will exercise any rights of compulsory acquisition and that UOL Group may consider delisting Hotel Negara from the Singapore Exchange.

Singapore Companies
Published August 24, 2006

UOL to exercise acquisition right on Negara shares

By LESLIE YEE



PROPERTY and hotel group UOL Group will exercise its right of compulsory acquisition on all remaining shareholders of Hotel Negara on Sept 23.


Yesterday, UOB Asia, on behalf of UOL, sent to Hotel Negara's shareholders a letter on UOL exercising its compulsory acquisition right under Section 215 of the Companies Act.

UOL will acquire all remaining Hotel Negara shares for a cash consideration of $6.45 each, which is the same price as that paid under the takeover offer UOL made for Hotel Negara. An estimated 113,000 shares Hotel Negara shares will be subject to compulsory acquisition.

UOL's right to compulsory acquisition arose as a result of it receiving acceptances for its offer from 90 per cent or more of the shares in Hotel Negara, excluding those it held at the date of the offer.

When the offer closed on Aug 11, UOL ended up with an interest of around 99.46 per cent in Hotel Negara.

UOL Group entered into agreements in late June to purchase shares in Hotel Negara from United Overseas Bank, Overseas Union Holdings, Overseas Union Insurance and Overseas Union Facilities, giving it a 54.5 per cent interest in Hotel Negara. This triggered a mandatory conditional offer for the remaining shares of the hotel.

Hotel Negara's key asset is its site at 10 Claymore Road, which is currently used as a hotel. This site has redevelopment potential for residential use or a mix of commercial and residential use.

With UOL exercising its right of compulsory acquisition, Hotel Negara looks poised to become fully owned by UOL.

UOL's share price closed at $3.06 yesterday, up 21.9 per cent for the year to date.

UOL's major shareholder is UOB chief Wee Cho Yaw and family, with an interest of around 27 per cent.

OCBC Investment Research yesterday maintained its buy call on UOL.