Hotel Properties Limited

Kim Eng on 6 Dec 2012

Two big kicks from developers themselves. Two developers are on trading halt this week. High-end property developer, SC Global, has been offered a mandatory cash offer of SGD1.80/share by CEO Simon Cheong, implying a 15% premium to book value of SGD1.56 and 122% discount to our RNAV of SGD4.0. Second would be Hong Kong listed Guoco Group, which is also halted pending a possible privatization offer. We have previously highlighted Hotel Properties’s prime hotel and retail assets on Orchard, which include the Forum, Hilton, and Four Seasons, as well as a long list of investment properties held overseas. We stand by our BUY call and urge investors not to ignore the overwhelming discount of 44% to its RNAV of SGD4.63/share.

Orchard’s demand vs. supply. We have emphasized that Orchard Road retail supply is severely limited – only 0.35m sq ft of retail space can come onstream on Orchard Road (AEI at Atrium and Orchardgateway) in 2012, and even less in 2013 at 0.15m sq ft (268 Orchard redevelopment). Our house view is that demand for retail space CAGR of 2.8% over 2011-15 will outstrip supply CAGR of 2.4% over 2011-15. We currently value HPL’s Orchard assets alone to be worth SGD2.80/share. If redevelopment of the three assets materialises, this would add another SGD0.93/share to RNAV.

Potential buyers in acquisitive mode. Armed with a strong cash position of SGD485.1m, and low debt of SGD70.1m, Far East Orchard (FEOR) is currently in an acquisitive mode for mid to prime hospitality assets. FEOR’s prime hotel, Orchard Parade Hotel, is situated just down the road from HPL’s Hilton and Four Seasons. We value these two assets at SGD743.6m, which is certainly within the reach of FEOR.

Don’t miss out on deep value plays. We reiterate our BUY call on the stock and raise our target price to SGD3.24, pegged to a 30% discount to RNAV of SGD4.63/share. Recent rounds of privatization may continue to stir the pot for deep-asset developers to privatise their assets at a bargain.