SingLand trades at lower valuation than UIC.

estimates, the RNAV of SingLand is $4.0b, while the book value of its

equity is $4.4b. However, SingLand trades at a market cap of $2.3b

currently, a substantial 43% discount to its RNAV. UIC, on the other

hand, has a market cap of $3.79b and book value of $3.95b. Therefore,

in terms of relative valuation, UIC trades at a higher valuation of 0.97x

P/BV compared with SingLand which trades at 0.52x P/BV. One reason

for UIC’s higher valuation could be the gradual purchases by Mr Wee

and Mr Gokongwei, which provide a support to its share price.

Figure 18: SingLand’s valuation

Description Tenure Stake NLA (sqft)/

Rooms

New market

value (S$m)

SingLand Tower 999-year 100% 618,930 1,147.0

Clifford Centre Office 999-year 100% 219,327 286.3

Clifford Centre Retail 999-year 100% 54,832 69.9

The Gateway 99-year 100% 751,359 855.1

Abacus Plaza 99-year 100% 90,385 75.0

Tampines Plaza 99-year 100% 90,385 75.0

SGX Centre 2 99-year 100% 277,711 375.2

Marina Square - retail 99-year 53.10% 735,999 626.4

Marina Square - office 99-year 53.10% 77,059 52.6

Pan Pacific Hotel 99-year 53.10% 775 rooms 399.7

Total investment properties 3,962.3

Book Value of investment properties 4,350.0

Surplus of investment properties -387.7

Associate Companies

Marina Mandarin & Oriental Hotels 99-year 26.50% 1,112 rooms 296.1

West Mall 99-year 50% 183,828 124.9

Novena Square office 99-year 20% 495,300 117.6

Novena Square retail 99-year 20% 160,000 28.9

Total associates 567.5

Book value of associates 404.4

Surplus of associates 163.1

PV of developmental profits 138.7

Total surplus ($m) -85.9

Book value of Equity ($m) 4,124.1

RNAV ($m) 4,038.1

No. of shares (m) 412.5

RNAV per share $9.79

Premium/(Discount) -50%

Target Price $4.89

Source: Company, Maybank KE

Unlocking SingLand’s value.

makes sense to put money in undervalued assets and wait for the

intrinsic value to be unlocked. In this case, SingLand offers an attractive

proposition given its deep discount to book. The logical way to unlock

its value is to privatise the company and the trigger for such an event

could be one of the following:

1. Mr Wee (through UOL) or Mr Gokongwei acquires an additional

stake of more than 1% within a six-month period, thus triggering a

mandatory offer for UIC and, in effect, will also be required to make

an offer for SingLand by virtue of the chain listing provision.

2. UIC can on its own make a voluntary offer to privatise SingLand. It

has been accumulating shares of SingLand from the open market

and it is not hard to envisage this possibility, given its substantial

78% holding in SingLand and the deep discount that SingLand is

currently trading at.

In our opinion, the second likelihood may be higher as all it requires is

for both major shareholders to amicably agree to take SingLand private.

Waiting for Mr Wee or Mr Gokongwei to make an offer for UIC would

involve a more complicated process and may require more cash outlay

on the part of either party.

What next after privatisation? We can think of three scenarios.

1. Do nothing

By combining the assets of SingLand into UIC, stock valuation for the

enlarged entity with a more streamlined structure should already

enhance valuation.

2. Sell off SingLand’s assets

Based on market valuation, the sale of SingLand’s asset could fetch up

to $4.0b, which would generate cash for UIC to do a few things. It could

acquire more landbank for development or finance the redevelopment

of UIC Building (Figure 20).

3. Spin off assets and securitise into a REIT

By doing so, UIC can maintain a certain amount of control over the

assets, and possibly obtain a higher valuation for them through a REIT

structure. Indeed, this was Mr Gokongwei’s plan when he launched the

takeover offer for UIC back in 2005.

For such an exit, the capital market must be buoyant enough to justify

higher valuations if the REIT were to be listed. Given the quality of the

potential seed assets, such as SingLand Tower, The Gateway and SGX

Centre 2, such a REIT may appear less attractive than potential peers

like CapitaCommercial Trust (CCT) or K-REIT. Currently, CCT trades at

0.68x P/BV while K-REIT trades at 0.62x P/BV. It is hence unlikely that

the potential REIT can command a premium over these two peers.

Does UIC have the balance sheet?

outstanding 21.56% of SingLand at 0.65x P/BV, which is the 12-month

average, it would have to fork out approximately $620m in cash. We do

not think UIC will have issues raising this amount from debt, which may

well increase its own net gearing to just 0.3x. If it succeeds in such an

offer, UIC may even book in a goodwill gain of about $333m (being the

difference in the offer price and SingLand’s latest book value).Assuming UIC acquires the

What we would like to see.

to see UIC make a privatisation offer for SingLand so as to unlock value

for the minority shareholders, neaten the investment holding structure

at the UIC level and perhaps boost UIC’s own valuations by $0.24 per

share, assuming a goodwill gain of $333m. With complete control of

SingLand’s assets, UIC will have full flexibility on how it wants to

reconstitute the property portfolioWhatever the final outcome, we would likeFrom an investment point of view, itBased on Kim Eng’s