Hotel Properties Limited

Kim Eng on 12 Jul 2012

So much hidden value but so little has been done. Hotel Properties Limited (HPL) holds a prime portfolio of hotels, investment and residential properties globally. Based on the current market values of just its Singapore hotel assets, which include the Hilton, Four Seasons and Concorde hotels, as well as its investment properties, HPL is worth SGD4.58/share or more than twice its current share price. We reiterate our BUY on HPL, as the recent trend of asset divestments into REITS, such as the restructuring within Orchard Parade Holdings, could trigger investors to re-look at HPL.

It is not whether HPL would, but rather that it should. Orchard Parade Holding (OPH)’s spin-off of its Orchard Parade Hotel into a Far East hospitality REIT serves as a good reminder of how undervalued HPL’s assets in Orchard area are. With the latest valuation of the Orchard Parade Hotel at close to SGD1.1m/key, we estimate that similar valuations for the Hilton Singapore and Four Seasons would mean these assets are worth SGD1.47/share. We believe HPL should explore a similar restructuring exercise in order to unlock its deep value.

Redevelopment of its landbank will provide even greater upside. We explore possible redevelopment scenarios of HPL’s combined landbank (site area only) along Orchard Road of nearly 20,000 sqm. The URA has provided incentives such as higher plot ratios and extensions to boundaries to encourage redevelopment. HPL could enjoy a boost in its plot ratios for these sites along Orchard Road if it were to embark on a redevelopment program.

BUY ahead of concrete news. We reiterate our BUY call on the stock with a target price of SGD2.75, pegged to a 40% discount to RNAV of SGD4.58/share. HPL might have disappointed some value investors due to its lack of proactive shareholder value creation in the past. Although we still do not know if it will change soon, the recent events may put some pressure on management to review its strategy.