Hotel Grand Central

[weijian]

https://links.sgx.com/FileOpen/HGC-Annc-...eID=885683

Shareholder questions ahead of the upcoming AGM are heavily focused on share buybacks and what many perceive to be suboptimal capital allocation. However, given the controlling stake held by the founding family, minority shareholders have limited influence over strategic decisions. In practice, this means minorities are largely reliant on the dividend policy determined by management, with little ability to unlock or realise the company’s underlying NAV.

Some of the responses (in italics) are pretty revealing on how the controlling shareholders think.

Share buyback is one method of return to shareholders. The Company closely monitors the daily share price of the Company and acknowledges the weakness in the share price in recent years which is mainly market driven.  (My Thoughts: What is their meaning of "market driven" Poor Aus/NZL tourism driving poor hospitality performance or Mr Market not appreciating the company?)

As stated in the Share Repurchase Mandate Circular, it would require $26.5 million to repurchase 36,971,307 shares representing 5% of the number of shares of the Company resulting in an increase in the Net Asset per share by only 5 cents. In addition, the opportunity cost would be the interest forgone of $1 million based on an average interest rate of 4% on Australian Dollar fixed deposits. With some gearing, the $26.5 million would be better deployed in acquiring a $50 million hotel or office building earning at least 7% with a ROE of 13%.  (My Thoughts: "Only 5 cents"? When Mgt believes buying a partial stake in your own hotels for 50cents to a dollar is not much better than a fixed deposit, it is quite revealing. Matter of fact, buying back partial stakes in your own hotels is not very different from their later example of acquiring a 50mil hotel/office building.