OUE has made an announcement to undertake an Off-Market Equal Access Offer by proposing to buy back up to 10% of the total number of shares in issue at $1.25 per share.
What is an Off-Market Equal Access Offer
Unlike on-market share buybacks, in which the company would be buying shares from any willing seller at market value, an equal access buyback is done through an off-market offer that gives all shareholders an equal chance to tender a portion of their shares at a fixed price.
Therefore, this is not a buy out or a general offer.
OUE has informed that all shares purchased via the Off-Market Equal Access Offer shall be cancelled immediately. OUE expects its earnings per share to increase with the reduced total number of shares in issue.
Assuming the Maximum Buyback Amount is bought back, OUE will be committing S$105.05 million towards the buyback of shares, which will be funded through internal resources and/or external borrowings.
Details of the Off-Market Equal Access Offer
1) Terms & Conditions
The offer from OUE is to buy back up to 10% of total shares at $1.25 per share.
Shareholders may tender shares in excess of the entitled shares if other shareholders do not tender their full entitlement. Odd lots will be rounded down to the closest 100 shares.
2) Dates and procedures
Please note the dates mentioned below are indicative dates and a more accurate data point would be in the Letter to Shareholders. Dates are also subject to change.
Shareholders have the right, but not the obligation, to participate in the Off Market Equal Access Offer.
The Letter to Shareholders will be despatched on 30 May 2024 and Off-Market Equal Access Offer will be opened for acceptance by shareholders for a period of 28 calendar days from 30 May 2024 to 26 June 2024.
The record date for the offer is 27 June 2024 at 5:30pm. This is the date which OUE will determine the entitlements of the shareholders to the Off-Market Equal Access Offer.
Payment to shareholders will be made on 5 July 2024.
3) Will there be a take-over offer?
Based on the shareholding interests of the substantial shareholders, OUE notes that none of the substantial shareholders would become obliged to make a take-over offer for the Company the Take-over Code as a result of the Off-Market Equal Access Offer.
Why is OUE doing this?
OUE’s altruistic headline says that this offer is to reward shareholders as part of OUE’s 60th anniversary celebration.
OUE would like to reward Shareholders for their loyalty and support over the years by offering them an equitable opportunity to realise a portion of their investments in the Shares at a premium over recent market prices of the Shares and without incurring transaction costs.
In addition, OUE notes that the trading volume of the Shares has been low. The Off-Market Equal Access Offer provides Shareholders who may find it difficult to sell a meaningful portion of their shareholdings in the Company, with an opportunity to realise a portion of their investments in the Shares, which may not otherwise be readily available due to the low trading liquidity of the Shares.
Is this a good deal for OUE shareholders?
The proposed buyback will enhance shareholder value as it is accretive to the company’s earnings per share and net asset value per share. If the deal is accretive to the company, this means that the company is benefiting from the deal.
This also means that while shareholders benefit from an offer price that is 20% higher than the last 5 trading days, shareholders are likely still not fully benefiting from the inherent value of the company.
1) Historical share price performance
OUE has traded in a range of $1 to $1.50 in the last 5 years. Looking at a longer term history, OUE has traded above $3 back in 2013. The offer of $1.25 sits in the middle of the 5-year trading range but is far below historical prices.
2) Financial performance and asset value
Looking at the financials of OUE, we noted that its financial performance has been lacklustre, much like any other property developer, as a portion of profits is dependent on fair value gains.
Revenue for FY23 was higher than FY22 due to higher contributions from OUE’s investment properties and hospitality divisions within the real estate segment, as well as higher revenue from its healthcare segment.
However, the bottomline was impacted by a lower share of results of equity-accounted investees, higher fair-value losses recognised for investment properties, and finance expenses,
Earnings per share have also fluctuated in the last few years due to the external macro environment.
The net asset value (NAV) per share stood at $4.31 as at FY23. This has also been eroded from a high of $4.52 due to translation losses on overseas properties as the Singapore dollar has strengthened against many currencies.
It must be highlighted that the NAV accounts for only its investment properties at fair value. The balances for property, plant and equipment, which includes assets used to run its hospitality and healthcare segments, are recorded at a cost less depreciation value, also known as net book value. The fair value is likely higher.
Additionally, the investments in equity accounted investees are recorded based on the cost of investment plus the proportion of profits accruing to this investment, i.e., another value that uses cost as a basis. Similarly, the fair value is likely higher.
OUE also has an inventory of developed property and land bank, which are carried at cost. In summary, this means that the revised net asset value (RNAV) is likely to be higher than $4.31.
Most importantly – could there be a better offer?
The answer is NO. This is not a takeover offer. It is merely a one time Off-Market Equal Access Offer.
Here’s what we think
Firstly, we should wait and observe if the Riady family, who are the major shareholders, decide to tender their shares. Assuming they do tender, this would enable them to receive cash from the company. If they do not tender, then their shareholdings would increase.
About 73.53% of shares are held by the Riady family, while 25.69% of shares are held by the public. The remaining shares are held by directors who are interested parties.
Mathematically, if the Riady family tenders none of their shares and all other shareholders tender 10% of their shares, the Riady’s stake would increase to 75.5%.
If the Riady family tenders none of their shares and all other shareholders subscribe in excess and somehow are able to utilise the entire available buyback, the Riady’s stake would increase to 81.7%.
Our point being, should the Riady not tender their shares while others do, the already low public float and trading volume would decrease further. One can naturally infer that this would inevitably lead to a takeover offer in the future.
In a takeover, the offer price would have to be reasonable at the very least, and best if its also fair to shareholders. In this regard, we are not sure that $1.25 would qualify as a reasonable price when the net asset value is $4.31 and the RNAV is possibly higher than $4.31.
We also suggest that shareholders read the Chairman & Group CEO’s statement section of the annual report to better understand the positive outlook and growth potential of the company.
In conclusion, while the dividend yields do not provide for much in the current interest rate environment, we do not believe that shareholders should give up waiting and tender a portion of their shares in OUE.
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