In 2014, Eli Lee, then an analyst at OCBC Investment Research, wrote a report that argued specific developments such as new MRT stations, URA’s Master Plan for 2014 and revised building codes could transform what he named as “West Orchard Road”.
By far, Hotel Properties (HPL) owns the largest segment of West Orchard Road. The potential redevelopment of voco Orchard Singapore (formerly Hilton Hotel), Four Seasons Hotel and the Forum, which are all owned by HPL and form a contiguous land site, is not a new story. The Edge Singapore had written about it as far back as 2006. Forum and voco Orchard Singapore occupy some 180m of frontage on Orchard Road.
Lee used a surplus revalued net asset value (RNAV) calculation that also took into account a potential redevelopment of its West Orchard Road assets (Forum, voco, Four Seasons and HPL House). Based on this, HPL’s RNAV was estimated to be $8.20. Fair value was calculated at a 35% discount to RNAV, which worked out to $5.32.
Fast forward to Aug 28. The new Thomson-East Coast Line is up and running. And, HPL announced it has received the grant of provisional permission (PP) for the redevelopment of the Forum, voco Orchard Singapore and HPL House from the URA under the Strategic Development Incentive (SDI) Scheme, subject to certain terms and conditions.
The combined site of the three properties — comprising freehold land and a 999-year leasehold land located along Orchard Road and Cuscaden Road — has a total land area of 150,986.66 sq ft (14,027.12 sq m).
The approval is for a comprehensive mixed redevelopment comprising hotel, retail, office and residential components in two tower buildings of 64 storeys and 43 storeys on a six-storey podium with a rooftop garden, a performance theatre and basement carpark. A separate 29-storey tower will be erected over the contiguous basement carpark. The total approved gross floor area for the proposed mixed development is approximately 114,153.38 sq m or 1,228,736.71 sq ft, the announcement says.
“The application for the PP was made in response to the rejuvenation incentives for strategic areas under the SDI Scheme, as part of our asset management review to identify assets under the HPL Group which could potentially be enhanced and their values optimised,” the HPL announcement says. Interestingly, HPL refers to its part of Orchard Road as “northwest”.
DBS Group Research says: “Given limited information for now, our back-of-the-envelope is that a fully developed project could be worth up to $3.2 billion or more, depending on the size of the residential component. This translates to a potential uplift of in excess of $2.00/share to our RNAV of $5.80/ share or a 34% accretion. Our RNAV is based on an ‘as-if’ basis and has not captured this rejuvenation potential.”
DBS initiated coverage of HPL in February this year, based on its share in Cuscaden Peak which acquired Singapore Press Holdings’ non-media related assets such as its REIT, student accommodation and other properties.
See also: Frasers Property: Narrowing the discount
Cuscaden Peak is a consortium comprising HPL, CLA Real Estate Holdings and Mapletree. The SPH assets acquired have been renamed as Cuscaden Peak Investments.
Based on the revaluation surpluses of HPL’s hotels and investment properties, the RNAV works out to be $5.80. The additional $2 per share takes the RNAV to $7.80. Ascribing a 25% discount would translate into $5.85. HPL’s share price last traded at $3.80 as at Sept 13, up 6.7% this year
