New Reporter
06-09-23, 14:51
Execution and key man risks in HPL’s plan to redevelop Orchard Road properties
Leslie Yee
Sep 06, 2023
THINGS are stirring at tightly-held hotel, property and lifestyle group Hotel Properties : H15 -2.12%(HPL).
Last month, HPL said it had received the grant of provisional permission from the Urban Redevelopment Authority to redevelop Forum The Shopping Mall, voco Orchard Singapore and HPL House under the Strategic Development Incentive.
These three properties sit on freehold and 999-year leasehold land located along Orchard Road and Cuscaden Road, with a total land area of 150,987 square feet (sq ft). HPL’s share price rose after this announcement.
The approval is for a mixed redevelopment comprising hotel, retail, office and residential components, as well as a rooftop garden, a performance theatre and a basement car park.
Total approved gross floor area (GFA) for the proposed mixed development is around 1.23 million sq ft. Assuming the price per square foot of GFA is S$3,300, the proposed development’s gross development value could exceed S$4 billion.
Upon completion, the proposed development can become the focal point to the north-west of Orchard Road. The redevelopment is arguably the most ambitious and important project ever for HPL, which was incorporated in 1980.
HPL’s shareholders will not be the only beneficiaries of the redevelopment plan. Singapore’s economy benefits if HPL redevelops its crown jewels.
Many jobs will be created during and after the redevelopment. Government coffers will gain from the collection of higher taxes post redevelopment. Crucially, an exciting new development can add vibrancy to a key stretch of Orchard Road and strengthen Singapore’s value proposition to international visitors.
There are, however, some risks to HPL’s grand plan.
While redevelopment optimises the use of large high-value land parcels by creating a product that meets today’s live, work and play needs, HPL may suffer a big drop in steady recurrent income contributions from the properties during the redevelopment.
The current high interest rate environment will elevate borrowing costs for the project. Also, with large-scale and high-profile projects, there may be costly delays in getting various approvals or during construction.
Selling homes off-plan ahead of completion can help alleviate the strain on cash flow of undertaking the proposed development. But the pace of sales of luxury Orchard Road homes may be slow.
This is especially as demand from foreigners could be muted because non-permanent resident foreigners buying homes here now have to pay a 60 per cent Additional Buyer’s Stamp Duty.
Joint-venture option
One way to mitigate these development risks is for HPL to follow the lead of telco Singtel : Z74 0%.
To redevelop its Comcentre headquarters near Somerset MRT station, Singtel brought in Lendlease as a 49 per cent shareholder. Property group Lendlease provides development, construction and ongoing property and asset management services.
HPL could partner a property group – preferably one with a strong track record in carrying out integrated developments – to redevelop its Orchard Road area assets.
Forming a joint venture with a credible partner on terms that are fair to HPL can provide assurance to shareholders that development risk is well managed.
Lendlease or Temasek’s CLA Real Estate may be an ideal joint-venture partner.
CLA owns property giant CapitaLand Group and already has ties with HPL. Both parties are part of a consortium, alongside Temasek’s Mapletree Investments, that owns the property group Cuscaden Peak Investments.
Passing the baton
There is, however, another risk that is not so easily mitigated.
While HPL and its advisers work on detailed plans and the timeline for redeveloping its crown jewels, a huge cloud hangs over the group’s most senior executive: Ong Beng Seng.
In mid-July, news broke that Ong was arrested by the Corrupt Practices Investigation Bureau (CPIB). The anti-graft body asked Ong, who is HPL’s managing director, to provide information on his interactions with Transport Minister S Iswaran. HPL’s share price reacted negatively to this news.
Ong, 77, is also HPL’s co-founder and has a total interest of over 60 per cent in HPL based on the company’s latest annual report.
This key man risk would be resolved if Ong were to sell his stake, although this is unlikely to happen.
Besides holding a stake in Cuscaden Peak, which owns three properties in the Orchard Road area that may be redeveloped, HPL owns other Orchard Road area assets: Four Seasons Hotel Singapore and Concorde Hotel Singapore.
As at end-2022, the group has interests in 38 hotels and resorts across various countries. It also has interests in joint-venture property developments in London.
CLA could be keen on Ong’s HPL stake. Other Temasek-linked groups, namely Mapletree and Keppel Corporation : BN4 +0.15%, which are focused on growing assets under management, may be interested in HPL too.
Potential suitors may also include tycoon families who are major asset owners in the Orchard Road belt, such as the Ng family of Far East Organization or the Kuok family of Kuok Group.
Another potential buyer of HPL could be Hong Kong billionaire Peter Woo and family. Wheelock and Company, which is linked to the Woo family, has a deemed interest of about 22.5 per cent in HPL, according to the latest annual report. Getting more Singapore exposure can help the Woo family, which has extensive property interests in Hong Kong, in diversification.
While Ong is synonymous with HPL, now might even be an opportune time for the tycoon to hand over the reins at HPL. With provisional planning permission secured for its crown jewels, he can fetch a better price for his HPL stake.
The mega redevelopment must create a landmark and generate great financial returns. An efficient structure must be put in place to hold the redevelopment post-completion, be it a real estate investment trust or some other vehicle.
Can Ong be laser-focused to bring out the best in the mega Orchard Road area redevelopment? If not, he should pass the baton to someone else, with deep pockets and expertise, to take the redevelopment and HPL to greater heights.
The writer owns shares of HPL
https://www.businesstimes.com.sg/opinion-features/columns/execution-and-key-man-risks-hpls-plan-redevelop-orchard-road-properties
Leslie Yee
Sep 06, 2023
THINGS are stirring at tightly-held hotel, property and lifestyle group Hotel Properties : H15 -2.12%(HPL).
Last month, HPL said it had received the grant of provisional permission from the Urban Redevelopment Authority to redevelop Forum The Shopping Mall, voco Orchard Singapore and HPL House under the Strategic Development Incentive.
These three properties sit on freehold and 999-year leasehold land located along Orchard Road and Cuscaden Road, with a total land area of 150,987 square feet (sq ft). HPL’s share price rose after this announcement.
The approval is for a mixed redevelopment comprising hotel, retail, office and residential components, as well as a rooftop garden, a performance theatre and a basement car park.
Total approved gross floor area (GFA) for the proposed mixed development is around 1.23 million sq ft. Assuming the price per square foot of GFA is S$3,300, the proposed development’s gross development value could exceed S$4 billion.
Upon completion, the proposed development can become the focal point to the north-west of Orchard Road. The redevelopment is arguably the most ambitious and important project ever for HPL, which was incorporated in 1980.
HPL’s shareholders will not be the only beneficiaries of the redevelopment plan. Singapore’s economy benefits if HPL redevelops its crown jewels.
Many jobs will be created during and after the redevelopment. Government coffers will gain from the collection of higher taxes post redevelopment. Crucially, an exciting new development can add vibrancy to a key stretch of Orchard Road and strengthen Singapore’s value proposition to international visitors.
There are, however, some risks to HPL’s grand plan.
While redevelopment optimises the use of large high-value land parcels by creating a product that meets today’s live, work and play needs, HPL may suffer a big drop in steady recurrent income contributions from the properties during the redevelopment.
The current high interest rate environment will elevate borrowing costs for the project. Also, with large-scale and high-profile projects, there may be costly delays in getting various approvals or during construction.
Selling homes off-plan ahead of completion can help alleviate the strain on cash flow of undertaking the proposed development. But the pace of sales of luxury Orchard Road homes may be slow.
This is especially as demand from foreigners could be muted because non-permanent resident foreigners buying homes here now have to pay a 60 per cent Additional Buyer’s Stamp Duty.
Joint-venture option
One way to mitigate these development risks is for HPL to follow the lead of telco Singtel : Z74 0%.
To redevelop its Comcentre headquarters near Somerset MRT station, Singtel brought in Lendlease as a 49 per cent shareholder. Property group Lendlease provides development, construction and ongoing property and asset management services.
HPL could partner a property group – preferably one with a strong track record in carrying out integrated developments – to redevelop its Orchard Road area assets.
Forming a joint venture with a credible partner on terms that are fair to HPL can provide assurance to shareholders that development risk is well managed.
Lendlease or Temasek’s CLA Real Estate may be an ideal joint-venture partner.
CLA owns property giant CapitaLand Group and already has ties with HPL. Both parties are part of a consortium, alongside Temasek’s Mapletree Investments, that owns the property group Cuscaden Peak Investments.
Passing the baton
There is, however, another risk that is not so easily mitigated.
While HPL and its advisers work on detailed plans and the timeline for redeveloping its crown jewels, a huge cloud hangs over the group’s most senior executive: Ong Beng Seng.
In mid-July, news broke that Ong was arrested by the Corrupt Practices Investigation Bureau (CPIB). The anti-graft body asked Ong, who is HPL’s managing director, to provide information on his interactions with Transport Minister S Iswaran. HPL’s share price reacted negatively to this news.
Ong, 77, is also HPL’s co-founder and has a total interest of over 60 per cent in HPL based on the company’s latest annual report.
This key man risk would be resolved if Ong were to sell his stake, although this is unlikely to happen.
Besides holding a stake in Cuscaden Peak, which owns three properties in the Orchard Road area that may be redeveloped, HPL owns other Orchard Road area assets: Four Seasons Hotel Singapore and Concorde Hotel Singapore.
As at end-2022, the group has interests in 38 hotels and resorts across various countries. It also has interests in joint-venture property developments in London.
CLA could be keen on Ong’s HPL stake. Other Temasek-linked groups, namely Mapletree and Keppel Corporation : BN4 +0.15%, which are focused on growing assets under management, may be interested in HPL too.
Potential suitors may also include tycoon families who are major asset owners in the Orchard Road belt, such as the Ng family of Far East Organization or the Kuok family of Kuok Group.
Another potential buyer of HPL could be Hong Kong billionaire Peter Woo and family. Wheelock and Company, which is linked to the Woo family, has a deemed interest of about 22.5 per cent in HPL, according to the latest annual report. Getting more Singapore exposure can help the Woo family, which has extensive property interests in Hong Kong, in diversification.
While Ong is synonymous with HPL, now might even be an opportune time for the tycoon to hand over the reins at HPL. With provisional planning permission secured for its crown jewels, he can fetch a better price for his HPL stake.
The mega redevelopment must create a landmark and generate great financial returns. An efficient structure must be put in place to hold the redevelopment post-completion, be it a real estate investment trust or some other vehicle.
Can Ong be laser-focused to bring out the best in the mega Orchard Road area redevelopment? If not, he should pass the baton to someone else, with deep pockets and expertise, to take the redevelopment and HPL to greater heights.
The writer owns shares of HPL
https://www.businesstimes.com.sg/opinion-features/columns/execution-and-key-man-risks-hpls-plan-redevelop-orchard-road-properties