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

Singapore Hospitality REITs - UOB Kay Hian Research | SGinvestors.io CDL HOSPITALITY TRUSTS (SGX:J85) ASCOTT RESIDENCE TRUST (SGX:A68U)

Singapore Hospitality REITs - Redevelopment Of Liang Court Site




WHAT’S NEW


CDL Hospitality Trust : Redevelopment of Novotel Clarke Quay (NQC).

  • 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 Trust : Acquisition of W Hotel.

  • 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 : "Partial" sale of Somerset Liang Court.

  • 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).


TRANSACTION OVERVIEW




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’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.


ASCOTT RESIDENCE TRUST (SGX:A68U): (BUY/ Target Price: S$1.66)



CDL HOSPITALITY TRUSTS (SGX:J85): (BUY/ Target Price: S$2.05).



SECTOR CATALYSTS

  • 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.


ASSUMPTION CHANGES

  • We have kept our earnings forecast unchanged.


RISKS

  • Uncertainties from US-China trade conflict.





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



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