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

Two Transactions: Redevelopment of NCQ + Acquisition of W Hotel

CDL Hospitality Trusts’ (CDLHT) announced a proposed redevelopment transaction which involves the (1) divestment of Novotel Singapore Clarke Quay (NCQ) at Liang Court Site to a consortium led by City Developments Limited (CDL) and CapitaLand Limited (CL); (2) forward purchase of a brand new, lifestyle hotel at redeveloped Liang Court Site from a subsidiary of CDL; and also the proposed acquisition of W Singapore – Sentosa Cove (W Hotel).

Increased Foothold in Singapore Hospitality Market

The primary objective of the proposed redevelopment transaction is to retain CDLHT’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, CDLHT 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, CDLH 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 CDLH’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. Maintain HOLD.

Source: OCBC Research - 22 Nov 2019