SINGAPORE - Wee Hur Holdings&rsquo shares have been rallying over the past week on speculation over the possible sale of its purpose-built student accommodation (PBSA) business in Australia. 

 

The rally was triggered by an Oct 15 Australian Financial Review (AFR) report that US multifamily fund Greystar was acquiring GIC&rsquo s PBSA business for A$1.6 billion (S$1.4 billion).

 

The article in the daily claimed that Wee Hur, which sold GIC a 49.9 per cent stake in the same PBSA business in April 2022, is expected to retain a stake as GIC transfers ownership of its holding to Greystar.

 

Wee Hur, run by executive chairman Goh Yew Lian and his son and chief investment officer Goh Wee Ping, issued a clarification on Oct 17 to say that no material transactions had occurred involving those assets. 

 

But the company disclosed it is currently engaged in &ldquo early-stage confidential discussions with a third party&rdquo , which &ldquo may or may not lead to a transaction&rdquo . The group said there &ldquo is no certainty whatsoever that these discussions will result in any definitive agreement or transaction materialising&rdquo . 

 

Nevertheless, the news has stirred quite a bit of excitement in the market, sending the stock up 19.4 per cent last week to 43 cents. It jumped another 10.5 per cent to 47.5 cents on Oct 22.

 

But with the company remaining largely tight-lipped since its initial statement, there has been some confusion and speculation over the impact of this development.

 

Going by various market chat groups, investors are unsure whether the sale involves just GIC&rsquo s share or the entire PBSA portfolio. Also, does the A$1.6 billion price apply to just GIC&rsquo s 49.9 per cent stake or the whole hog?

 

So what is happening? Let&rsquo s break it down.

 

First, a bit of history.

 

Founded in 1980 and listed in 2008, Wee Hur started as a general contractor. It ventured into property development in 2009. In 2017, it started a fund of A$350 million to invest in PBSA in Australia with a target of 5,000 beds. 

 

Fast-forward to 2022, Wee Hur sold a 49.9 per cent stake in this PBSA1 fund to a wholly owned subsidiary of Singapore sovereign wealth fund GIC for A$567.9 million, valuing the seven properties at A$1.14 billion.

 

In February 2024, these properties were revalued at about A$1.4 billion, or the equivalent of S$1.23 billion.

 

Wee Hur owns 50.1 per cent of this PBSA business, which works out to $615.3 million or an implied 54.4 cents per Wee Hur share. After the last revaluation, this has risen to 67 cents per share. 

 

Today, this particular portfolio consists of 5,662 beds across seven student housing properties in Sydney, Melbourne, Brisbane, Adelaide and Canberra.

 

S&rsquo pore developer criticised for plans to turn 170-year-old hotel in Adelaide into student housing

Due to the extreme shortage of student accommodation in Australia, occupancy at these PBSAs has remained high and rental renewals have been at higher rates. Also, given that Wee Hur&rsquo s PBSAs are new, they have enjoyed higher upside reversion in rental rates compared with their peers.

 

When the company next revalues these properties in February 2025, it is likely to see another generous increase.

 

What is interesting is that the AFR cited GIC, which owns a 49.9 per cent stake in the asset, as the seller. If the A$1.6 billion refers to just this stake, it would be about a massive three times gain on the price GIC originally paid in 2022.

 

This means Wee Hur&rsquo s 50.1 per cent is also valued at around that price, which is $1.4 billion or $1.53 per share. 

 

As mentioned earlier, there are questions about whether the A$1.6 billion cited by AFR is the asking price for the entire PBSA asset, rather than just GIC&rsquo s 49.9 per cent share. But then, given that the property was valued at A$1.4 billion early this year, would it not make sense for Wee Hur and GIC to seek a premium?

 

The AFR is a reputable 73-year-old newspaper that usually does not get its facts wrong.

 

Then there are Wee Hur&rsquo s other assets, including its own Australian 409-bed PBSA2, and its 15,744-bed purpose-built workers&rsquo dormitory (PBWD) in Singapore. In addition, its new 10,500-bed PBWD, also in Singapore, will be operational by the end of 2024. If these were added to the reported PBSA1 sale valuation, Wee Hur&rsquo s net asset value per share, which was 73 cents at the end of June, should be closer to $2.

 

Whatever the case, Wee Hur seems significantly undervalued. Little wonder that the market, though somewhat confused, is still excited over the prospect of a deal.