atans1

Judging SPH’s mall bid — CEO gives a hostage to Fortune

In Investments, Property on 23/11/2009 at 5:00 am

Last Wednesday, BT carried an article in which the CEO of SPH (its parent) explained the thinking behind an SPH-led consortium winning bid to build a mall in Clementi. Its partners with 20% each were NTUC Fair Price and NTUC Income.

BT giving the background said, “Its winning bid of $541.898 million was the highest of six offers that HDB received for the mall. The winning bid is nearly 42 per cent more than the next highest offer of $382 million.” Analysts were amazed at the price paid.

“Winning bidders looking ahead at rentals upon lease renewal” was the screaming headline. BT went on quoting SPH’s CEO, “‘[W]hen we do our calculations, we are not using the rentals when we start operations. We are actually using after rental renewal cycle, whether it is after three years or six years,’ said SPH chief executive officer Alan Chan.”

“Had SPH used the typical strategy of real estate investment trusts (Reits), which assume say a 5-6 per cent return based on rents when the mall starts operating, it would have led to bids in the $300 million range – where four of the six bids came in for the mall at the close of HDB’s tender last Tuesday,” BT continued.

What I liked about the CEO’s comments is that he gave analysts a time frame on which he can be judged. I’m surprised that the PR/ IR spin doctors allowed him to make these hostage to fortune statements. I hope he will continue making such statements, that help anlaysts.

The usual practice when the winning bid is way above the next bid (known as “winner’s curse”)  is for mangement to mumble something about corporate long term values without going into details.

Long-termism is often used as an excuse for avoiding tough but necessary short-term decisions, or for covering up mistakes.  Remember Temasek’s Merrill Lynch investment was “long term”

So it is refreshing to see a CEO give a time frame of 3-6 years on which analysts like me can judge the bid.

If you are wondering why this piece took so long to appear — I wanted to ensure that the article reflected correctly the CEO’s views: there would be no retraction, correction or clarification.

Remember the AWARE bun fight (where “Anal sex is normal” feminists fought “Crucify the weirdos” X’ians. OK I exaggerate wildly the positions)? There were a lot of ponticating nabobs in the MSM and online who rushed into “print” talking of the implications on civil society of the government’s non-intervention, allowing the analists to retake control of  AWARE  from the “family values” X’ians.

Well a few days later, the government stepped in and said that AWARE’s sex manual did not conform to society’s standards on anal sex and homosexualism, giving the X’ians a famous victory and making the pontificating nabobs who rushed to judgement looking decidely stupid.

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  1. [...] brings me back to this http://atans1.wordpress.com/2009/11/23/judging-sphs-mall-bid-ceo-gives-a-hostage-to-fortune/. SPH, Fair Price and Income could get this project (which they won by a 42% margin from the next [...]

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