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Is The Straits Trading Company Limited Busy At Work Creating Shareholder Value Again?

Value

Just yesterday, local newswire The Business Times reported that The Straits Trading Company Limited (SGX: S20) is believed to be involved in “advanced discussions” to offload its Straits Trading Building, a 999-year leasehold office tower located at 9 Battery Road.

According to the report, the discussions are centred on a price just above S$2,800 per square foot (psf) based on the property’s net lettable area of around 159,000 square feet. Some light number crunching would reveal a net yield of 3% for the property’s potential buyer, whom The Business Times identified as “an overseas party, from Asia.” Based on the aforementioned price range, Straits Trading would likely be selling the property for close to S$450 million.

The Business Times’ report generated a lot of interest in the company’s shares as it closed up 2.4% for the day on high volume with 886,000 shares changing hands. For some context, Straits Trading saw less than 50,000 shares traded per day on average last week.

The company did not deny the report about the sale and announced on the same day that it wishes to inform shareholders that the Company has been in discussions with a potential buyer in connection with a possible transaction, which may or may not lead to the sale of the Straits Trading Building. Discussions are on-going and there is no certainty whatsoever that these discussions will result in any definitive agreement or transaction.”

Unlocking and creating shareholder value

On 14 August 2014, Straits Trading had announced its second quarter earnings. In the press release, the company made clear that its plans to monetise its property portfolio are ongoing and that the proceeds will be recycled into new real estate opportunities.

For long-time observers of Straits Trading, it should not come as a surprise that the company’s always been looking for ways to unlock and create shareholder value. Last year, the company formed a strategic alliance with ARA Asset Management Limited (SGX: D1R) to expand its real estate portfolio. Due to the partnership, Straits Trading now owns a 20.1% stake in ARA and also has a 89.5% ownership in Straits Real Estate, a co-investment vehicle that seeks out real estate related investments and opportunities.

Last year, it had sold off its 40.6% stake in WBL Corporation Limited to United Engineers Limited (SGX: U04) for approximately S$1.3 billion. Straits Trading also managed to sell Rendezvous Grand Hotel Singapore to Far East Hospitality Trust (SGX: Q5T) for S$264.3 million.

If the property at Battery Road is eventually sold, shareholders may receive a special dividend after the company keeps hold of some of the proceeds for expansion purposes. This was what happened when Straits Trading unloaded its stake in WBL Corporation; back then, the company had paid a special interim dividend of $0.50 per share in the second quarter of 2013.

However, once the Straits Trading Building is sold, the company may have to start looking for a new place to house its corporate headquarters that is currently sitting at the 28th floor of the property. Another alternative is that the company could lease back the area it now occupies after the sale; that’s a process known as a sale and leaseback in finance speak..

Whatever the case, the market seems to like what Straits Trading is doing with its real estate properties – at its current price of S$3.00, shares of the firm are up close to 4% since last Friday’s close.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Sudhan P owns shares in ARA Asset Management Limited.