With prime assets in and around Singapore’s city centre and more patients and private capital, developers are drawn to opportunities in the listed space to repurpose these assets for alternative uses.
As the value-unlocking theme continues to play out, investor interest in several other counters has also picked up. According to DBS Group Research analysts Tabitha Foo, Geraldine Wong and Derek Tan, the next big opportunity lies within CDL Hospitality Trusts(CDLHT) and sponsor City Developments (CDL), with the potential repurposing of Delfi Orchard, which comprises Orchard Hotel and Claymore Orchard. They believe this strategy could unlock significant value for both companies.
In their June 13 report, rhe analysts stated: “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.”
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 Properties(HPL).
Unlocking Delfi’s potential
CDL 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 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.
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Recently, the group divested a 50.1% stake in the South Beach mixed-use project for $2.75 billion to joint venture partner IOI Properties Group. This deal is one of CDL’s largest divestments. DBS sees this as a major step for the group towards its deleveraging strategy, with net gearing expected to drop by 14 basis points (bps) to about 103% once the divestment is completed. This will support strengthening of the group’s balance sheet and create financial headroom.
“We believe that CDL will be better positioned to capitalise on the significant unrealised value embedded in its portfolio,” say the DBS analysts, who view the divestment as not a downsizing of the group’s portfolio but rather a strategic reallocation of capital and optimisation of debt capacity to refocus on the group’s core competencies in residential development and hospitality.
The group is currently undertaking two major redevelopment projects — Union Square (formerly Central Mall and Central Square) and Newport Plaza (formerly Fuji Xerox Towers). Both developments are being transformed into mixed-use developments.
While no specific plans have been announced for the potential redevelopment of the three Orchard assets, the analysts have explored three possibilities: unchanged gross floor area (GFA), 30% uplift to 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.
If CDL and CDLHT decide to redevelop the three Orchard assets, the overall costs could come up to about $1.4 billion to $2.0 billion, depending on the additional GFA approved by the URA.
“Our estimates exclude any lease top-up assumptions, as Delfi Orchard is freehold and CDL retains the freehold reversionary interest in Orchard Hotel and Claymore Connect upon lease expiry in 2081,” say the DBS analysts. They also assume that while the current zoning permits a gross plot ratio (GPR) of only 4.9, the existing GPR may be retained or redeveloped without incurring a development charge. A land betterment charge (LBC) would apply only to any increase in GFA beyond the existing level.
They anticipate the new mixed-use development will feature a sizeable residential component, enabling partial monetisation upon launch. It is also likely to include a hotel component, a core competency, while the retail portion is expected to be relatively limited in scale to serve the needs of residents and guests. (See Table 2)
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Buy calls for both entities
DBS Group Research has “buy” calls for CDL and CDLHT with a target price of $6.70 for CDL. The analysts believe 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 between $2.0 billion and $3.2 billion for the new mixed-use development, translating to a valuation uplift of around $1.2 billion to $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 anticipates a significant upside for CDLHT from 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 between $960 million and $1.1 billion,” say the analysts.
They see two ways in which a potential swap of the Orchard Hotel site for two new prime Singapore hotel assets could unfold. In the first scenario, CDLHT exits through a full stake sale of Orchard Hotel and Claymore Connect to CDL, unlocking about $1 billion in proceeds. The second scenario, which is the preferred option of the DBS analysts, is for CDLHT to sell a 75% stake in the Orchard site to reap proceeds of about $717 million. CDLHT retaining a strategic stake in the future integrated development could serve as a potential medium-term pipeline asset.
The capital extracted in both ways could be used to fund the purchase of Moxy Hotel ($475 million), expected to be completed in FY2026/FY2027, given out as special dividends or reinvested to retain a partial stake in the new development.
“This deal could alleviate concerns of equity fundraising, 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 0.7 times P/B target, CDLHT could trade closer to $1.20 per share,” say Foo, Wong and Tan.
