SINGAPORE (Oct 15): OCBC Investment Research says Hotel Properties (HPL) could be the next candidate of a general offer.

Following the general offer for Hotel Properties (HPL) led by Ong Beng Seng and Wheelock Properties (Singapore) (WPS) in 2014, OCBC noted the potential for HPL and WPS to redevelop their neglected assets along the so-called “western end” of Orchard Road which stretches from Far East Shopping Center to Tanglin Mall into a mega-development.

“The western end of the Orchard district is known to be a less active shopping area comprising generally dated assets, which attract less foot traffic versus the vibrant retail areas to the east of Orchard Ion,” says OCBC analyst Deborah Ong in a Monday report.

Now, with the successful delisting of WPS, OCBC believes it would be easier for offeror, Wheelock & Co, to go ahead with any redevelopment of WPS’ assets. And along with this, OCBC also sees higher likelihood of a new general offer for HPL.

At the launch of the WPS general offer, OCBC had noted that perhaps 20 HK, Wheelock and Co’s offer vehicle, saw value in WPS’ stake in HPL above what they were willing to pay.

According to OCBC, WPS has a $605.5 million investment in associates on the books comprising solely of a 40% stake in 68 Holdings, which in turn has a 56% stake in HPL.

Through the WPS general offer, 20 HK effectively paid $3.61 per HPL share, which was close to HPL’s Friday closing price of $3.68 per share. As at 3.46pm, shares in HPL are trading 10 cents or 2.7% higher at $3.78. OCBC has a fair value of $4.74 for HPL.

“With it now being easier for 20 HK to push through any redevelopment plans and 20 HK already owning close to a 22.5% stake in HPL via WPS, we believe 20 HK and related parties may see greater value in conducting another general offer for HPL,” says OCBC.

At the moment, 68 Holdings and Ong Beng Seng (and spouse) own a collective 80.1% of HPL. Calculations by Ong show that at a 20% premium to last Friday’s closing price, a general offer by 68 Holdings would need around only $227 million to acquire a stake of at least 90% to hit the privatisation threshold for HPL or $457 million to acquire all of the remaining free float.

HPL’s last close of $3.68 is also at a 26% discount to OCBC’s RNAV of $4.97 which does not include any potential upside from an Orchard redevelopment.

“In this volatile market environment, we believe investors could benefit from adding counters with high idiosyncratic risk to their portfolios and see HPL as such a counter. Re-iterate ‘buy’ on HPL,” says Ong.