Friday, July 13, 2012

Orchard Parade Holdings - Listing Far East Hospitality Trust

Far east organization is one of the largest developers in Singapore and it’s hospitality arm named Orchard Parade Holdings(OPH) which is listed on Singapore exchange is creating flutters in Singapore with its presence in restructuring  and reviving of its business. It’s has a nice portfolio which consists of 388-room Orchard Parade Hotel , 210 room Albert Court Village alongwith Central Square Village residences. Orchard Parade Holdings also undertakes work related to development of property and has close to majority stake in most of the deals. Many brokerages have upgraded the stock from Neutral to Buy rating because of recent decisions which the management has taken.

Investors are of the view that Orchard Parade Holdings would restructure its business by selling its hospitality business and converting them into REITs (Real Estate Investment Trusts) which would result in huge cash inflows for the company and would enable them to create a strong base for long term growth. Management has also decided to divest off it’s 49.5% stake in Yeo Hiap Seng(YHS) as and when market becomes attractive and it gets a good deal. Amount received from stake sale of Yeo Hiap Seng(YHS) would be used in completing pending real estate projects which have been long overdue.

Its new CEO Lucas Chow has an excellent track record of getting the best out of people and building great businesses. He was also one of the board of directors since 2008 of Orchard Parade Holdings. The company aims to gain a major market share in it’s hospitality business which looks possible considering that tourist travels in Singapore is on upward curve for 15th consecutive week.

Company's balance sheet has been leveraged efficiently and it has been able to improve its profit performance from 7.42% in 2008 to whopping 34.21% in FY11 which is quite remarkable considering the challenging environment across the world. Company also paid a dividend of 9% to it’s share holders in FY11.

In short, analysts generally agree that the restructuring of Orchard Parade Holdings is a positive news for shareholders and they should remain invested in stock with 3-6 months horizon for an target of SGD2.37. It is expected to make good use of the prevailing market conditions which are favourable for the company in order to capitalize on selling its Yeo Hiap Seng(YHS) stake alongwith its hospitality assets. It also has higher recurring sources of income which makes the stock a safe bet during economic downturn.

In recent developments, Orchard Parade Holdings is preparing to sell three of its assets to an SGX bound hospitality trust at a deal which is valued at closed to $700 million. It also plans to list Far East Hospitality trust which owns assets worth $2 billion. This is still awaiting shareholder's approval .

Orchard Parade Holdings also announced that it would reward its shareholders by paying them a special dividend of 12% which would be tax exempt. Orchard Parade Holdings in its meeting also decided that it would change it’s name from Orchard Parade holdings to Far East Orchard Limited to capitalize on the brand value of its parent company.

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