Singapore Hospitality REITs - UOB Kay Hian 2019-11-22: Redevelopment Of Liang Court Site

CDL HOSPITALITY TRUSTS (SGX:J85) ASCOTT RESIDENCE TRUST (SGX:A68U)

Singapore Hospitality REITs - Redevelopment Of Liang Court Site

The redevelopment of the Liang Court site will create an integrated development linked to Fort Canning MRT station and facing the Singapore River promenade.
ASCOTT RESIDENCE TRUST (SGX:A68U)’s Somerset serviced residence with 192 units is slated to open in 2H24, while CDL HOSPITALITY TRUSTS (SGX:J85)’s 475-room lifestyle hotel under Moxy brand is scheduled for completion in 2025.
Ascott Residence Trust and CDL Hospitality Trusts plan to stay invested in the Liang Court site.
BUY Ascott Residence Trust (BUY/ Target Price: S$1.66) and CDL Hospitality Trusts (BUY/ Target Price: S$2.05).

CDL Hospitality Trusts has proposed to divest NQC, which sits on the Liang Court site, for S$375.9m (NPI yield: 5.6%), 87% above its original purchase price of S$201.0m in 2007 and generates divestment gain of S$36.3m. CDL Hospitality Trusts will also acquire the redeveloped new lifestyle hotel that will be managed by Marriott under the Moxy brand, at the lower of the fixed price of S$475.0m or 110% of the new hotel’s development costs.
The acquisition price is capped at S$475.0m (NPI yield: 5.6%). The land's lease tenure is extended from 57 years to 99 years. The acquisition of new hotel is intended to be funded through debt financing upon delivery in 2025.

CDL Hospitality Trusts has also proposed to acquire luxury W Hotel for S$324.0m (NPI yield: 3.1%). W Hotel has gained international profile by hosting the Trump-Kim Summit in Jun 18. The acquisition of W Hotel is intended to be funded through the use of internal resources, including proceeds from the divestment of NCQ and/or debt financing.

Ascott Residence Trust (SGX:A68U) has signed a put and call option agreement to divest 15,170sqm of the site’s GFA for Somerset Liang Court for S$163.3m (Ascott Residence Trust retains remaining interest representing GFA of 13,034sqm in its share of land).
According to management, cap rate for the divestment is 3.5%. With net proceeds from the divestment, Ascott Residence Trust will redevelop the retained GFA of 13,034sqm into a new Somerset serviced residence with a hotel licence. The estimated project development expenditure of Somerset serviced residence is S$300m (land: S$140.3m and redevelopment cost: S$157.3m).
Somerset serviced residence has 192 units and is slated to open in 2H24. EBITDA yield is estimated at 4% after the new Somerset serviced residence’s performance stabilises. The land's lease tenure is extended from 57 years to 99 years.
The divestment price of S$163.3m is 44% above book value and 138% above the acquisition price of S$127.5m in 2006. Ascott Residence Trust is expected to recognise a total divestment gain and fair value gain of S$84.3m (divestment gain: S$41.5m, fair value gain from its retained GFA in the land: S$42.8m).

The redevelopment of the Liang Court site will create an integrated development linked to Fort Canning MRT station and facing the Singapore River promenade. Ascott Residence Trust’s Somerset serviced residence with 192 units is slated to open in 2H14, while CDL Hospitality Trusts’s 475-room lifestyle hotel under the Moxy brand is scheduled for completion in 2025.

The partial divestment of Somerset Liang Court (loss of contribution from Somerset Liang Court), without factoring savings in interest expense from divestment proceeds, reduces pro forma 2018 DPU by 4.6%. Ascott Residence Trust could utilise the divestment gains to top up DPU while Somerset serviced residence is under construction.
See report: Ascott Residence Trust - Somerset Liang Court Rejuvenation.
See also: Ascott REIT Share Price; Ascott REIT Target Price; Ascott REIT Analyst Reports; Ascott REIT Dividend History; Ascott REIT Announcements; Ascott REIT Latest News.

The redevelopment of NQC is expected to boost pro forma 2018 DPU by 2%. The acquisition of W Hotel, on a standalone basis (exclude redevelopment of NCQ), is expected to boost pro forma 2018 DPU by 0.9%. On a combined basis, both transactions are expected to boost pro forma 2018 DPU by 2.7%.
See report: CDL Hospitality Trusts - Preserving Its Singapore Majority.
See also: CDL Hospitality Trust Share Price; CDL Hospitality Trust Target Price; CDL Hospitality Trust Analyst Reports; CDL Hospitality Trust Dividend History; CDL Hospitality Trust Announcements; CDL Hospitality Trust Latest News.

Environment of persistent low interest rates.
Series of government initiatives to develop new tourism attractions in Singapore.
Limited supply of new hotel rooms in Singapore over the next three years.

Jonathan Koh CFA UOB Kay Hian Research | Loke Peihao CFA UOB Kay Hian | https://research.uobkayhian.com/ 2019-11-22

SGX Stock Analyst Report BUY MAINTAIN BUY 2.050 SAME 2.050

BUY MAINTAIN BUY 1.660 SAME 1.660