CDL Hospitality Trusts - OCBC Investment 2019-11-22: Increasing Foothold In SG Hospitality Market


CDL Hospitality Trusts - Increasing Foothold In SG Hospitality Market

  • Two proposed transactions.
  • Unlock value of NCQ.
  • Further penetration in Singapore’s lifestyle hotel market.

Two transactions: redevelopment of NCQ + acquisition of W Hotel

Increased foothold in Singapore hospitality market

  • The primary objective of the proposed redevelopment transaction is to retain CDL Hospitality Trusts’s presence in the Liang Court Sites due to the prime location at Clarke Quay. The divestment consideration of NCQ is S$375.9m, with total divestment and fair value gain of S$36.3m.
  • Meanwhile, CDL Hospitality Trusts will acquire the new hotel for the lower of the fixed price of S$475.0m or 110.0% of the new hotel’s development costs, with a fresh 99 years leasehold from acceptance of lease renewal, at an implied NPI yield of 5.6%. The acquisition is currently intended to be funded through debt financing upon delivery in 2025, with the final funding structure to be determined closer to the completion date.
  • Moreover, CDL Hospitality Trusts will acquire the W Hotel for S$324.0m, at an implied NPI yield of 3.1%. The acquisition will be funded through the use of internal resources, including the proceeds from the divestment of NCQ, and/or debt financing.

DPU accretive transactions

  • The divestment of NCQ is expected to complete in Apr 2020, while the new hotel and is expected to open in 2025, subject to security holders’ approval at EGM in Jan 2020. Both transactions are DPU accretive, with 2.7% DPU accretion as a whole, or 2.0% and 0.9% DPU accretion from the NCQ redevelopment transaction and the acquisition of W Hotel respectively, on a pro forma FY 2018 basis.
  • We see the transactions as largely positive for CDL Hospitality Trusts’s long-term growth but we are likely to see lower distributions and a slight drop in DPU in the short term due to the divestment of NCQ and the acquisition of W Hotel is not able to fully mitigate the divestment impact. However, the net sale proceeds from NCQ could be used to smoothen out DPU.
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Chu Peng OCBC Investment Research | 2019-11-22
SGX Stock Analyst Report BUY UPGRADE HOLD 1.690 SAME 1.690