With prime assets located in and around Singapore’s city centre, more patient and private capital, alongside developers, are drawn to opportunities in the listed space, with a view to repurpose these assets for alternative uses.
As the value-unlocking theme continues to play out, investor interest in several other counters have also picked up. The way DBS Group Research analysts Tabitha Foo, Geraldine Wong and Derek Tan see it, the next big opportunity lies within CDL Hospitality Trusts(CDLHT) and sponsor City Developments Limited(CDL), with the potential repurposing of Delfi Orchard – Orchard Hotel and Claymore Orchard. They believe that this strategy could unlock significant value for both companies.
“A new integrated development that emerges will offer significant upside for both companies. A win-win strategy would be for CDLHT to divest all or part of its stake in their properties to CDL for the redevelopment, a scenario which could play out in the foreseeable future,” says the three analysts in their June 13 report.
Additionally, the government has signalled its support by introducing initiatives such as the Strategic Development Incentive (SDI) Scheme and CBD Incentive Scheme, as well as extending the Additional Buyer’s Stamp Duty (ABSD) remission deadlines for complex ‘urban transformation’ projects by six to 12 months.
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While the analysts see the government support as a positive sentiment for developers with older properties in Orchard Road and the Central Business District (CBD) areas, they also believe that the next redevelopment to watch is Delfi, located at the junction of Tanglin Road and Orchard Road, and opposite a proposed development site owned by Hotel PropertiesLimited (HPL).
CDL had acquired Delfi Orchard for $439 million in May 2024, but its real “holding cost” is much lower. Delfi Orchard sits adjacent to CDLHT’s 656-key Orchard Hotel Singapore and Claymore Connect mall. Although the Orchard Hotel was sold to CDLHT in 2006 with a 75-year extension option (56 years remaining), CDL retains the freehold reversionary interest in both the hotel and the mall beyond 2081. “We believe the Delfi Orchard acquisition could pave the way for a larger, integrated redevelopment encompassing all three assets,” say the analysts.
While no specific plans have been announced for the potential redevelopment of the three Orchard assets, the analysts have explored three possibilities: unchanged GFA, 30% uplift to gross floor area (GFA), and 50% uplift to GFA, along with the potential increase in gross development value (GDV) and RNAV for CDL. The key to achieving this will depend on CDL working with CDLHT to pursue a win-win outcome for both listed entities.
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Buy calls for both entities
DBS Group Research has “buy” calls for both CDL and CDLHT.
It has a target price of $6.70 for CDL and the analysts are in the view that extracting value from assets in its books would offer investors more comfort that the group remains on a value-accretive growth path.
“In our scenario analysis, we assume three development schemes ranging from a 0% to 50% increase in GFA to be achieved under the government’s SDI scheme. We forecast a GDV ranging between $2.0 – $3.2 billion for the new mixed-use development, translating to a valuation uplift of around $1.2 – $2.4 billion. This could raise CDL’s RNAV by up to 74 cents/share, which we believe is not priced in by the market yet,” say the analysts.
The research house has a target price of $1.10 for CDLHT and anticipate significant upside to be reaped by CDLHT for its Orchard Hotel and Claymore Orchard assets valued at $637 million.
“Assuming the GFA for the new development is raised by 50%, we see CDLHT selling the assets at 50-75% above current book value, implying an exit price of $960 million - $1.1 billion,” say the analysts.
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The capital extracted could be used to fund the forward purchase of Moxy Hotel (about $475 million) expected to complete in FY2026/FY2027; given out as special dividends; and/or re-invested to retain a partial stake in the new development.
“This deal could alleviate concerns of equity fund raising, which at current levels, would be dilutive. At a base scenario of 50% GFA upside, we estimate 25 cents per share upside to book value. Using an average 0.7x P/B target, CDLHT could trade closer to $1.20 per share,” say Foo, Wong and Tan.
As at 11.45am, shares in CDL and CDLHT are trading at $5.12 and 76 cents, respectively.
