Sumer, who is regarded as the resident property guru in the NextInsight forum, posted the following in the 2nd Liner Property Stocks thread yesterday.
AS INVESTOR sentiment towards undervalued property plays is aroused by the takeover offer for Hotel Properties, there is one stock that may be worth taking a peek at – Bonvests Holdings.Bonvests is known mostly for owning Liat Towers and Sheraton Towers (a hotel next to Newton MRT station), although the company has other businesses such as resort hotels in Mauritius, Maldives, Tunisia and Tanzania, and owns 79% of Colex, a listed waste management and contract cleaning company.
Liat Towers is smack next to Wheelock Place, and while only 40,340 sq ft in land size (and 6.2 plot ratio), has an Orchard Road frontage far wider than Wheelock Place’s.
I would imagine that any redevelopment of Wheelock Place would be much more prestigious if the Liat Towers site forms part of the new project.
Based on a land price of $2,400 psf ppr, land would be valued at $600m. I estimate that Bonvest values Liat Towers at about $450 m at most, leaving a surplus of about $150m.
Liat Towers is a rather old office building with a small retail space, and is not fully utilizing its retail space entitlement, I believe.
In recent years, it also had encountered flood issues (as its shop space is at a lower level than the Orchard Road pedestrian walkway), and could be ripe for redevelopment, especially if it becomes part of a new project that stretches from Wheelock Place to the Anguilla car park.
However, this is not even Bonvests' big prize, which is actually Sheraton Towers, a 420-room 5-star hotel sitting on freehold land next to a MRT station.
Bonvests’ free float is only 17.2%, and it does not cost much for the major owner to take it private. Even an offer price of $1.80 means a cost of only $124m to the majority shareholder.
Having said that, this counter can be quite illiquid, and sometimes it appears to be stubbornly trapped in a tight trading range (like last year), and no one appears interested in it.
So, lots of patience may be required, and there is a risk of what some call “value trap” – you are at the mercy of the majority shareholders, who may have their own reason for not privatizing the company.
Moreover, in recent years the company had been quite miserly in paying dividend, compared to its earlier years. Also, the stock has risen these few days probably due to the HPL story, so some caution is warranted.
I have never attended Bonvests’ AGMs, so I am not familiar with its owners and CEO. To me, trust in the people that own or run a company is an important consideration in investing.
So, based solely on the figures above, I would say owning a small stake in this stock, and patiently waiting for the prize, does look safe.
MORPH: A successful value fund manager you haven't heard of
See also NextInsight forum thread Bonvests