FE-Htrust – DBSV

Growing its Singapore presence

  • Proposed acquisition of Rendezvous Grand Hotel Singapore and accompanying retail wing
  • A value accretive deal in our view with synergies to be extracted from an enlarged Singapore presence
  • BUY, TP S$1.10 based on DCF

Proposed acquisition of Rendezvous Grand Hotel Singapore and accompanying retail wing. Recently refurbished and re-opened, the 298-room Rendezvous Grand Hotel Singapore is well located near the central commercial and cultural district in Bras Basah Road. This proposed acquisition will further deepen the trust’s already entrenched position as one of Singapore’s largest hotel owners. This deal will be keenly watched as this is the manager’s maiden deal post IPO and will be a gauge of their ability in driving synergies between this new hotel and its existing portfolio.

Likely to be a value accretive deal. No financial details are disclosed at this point. Using available data and industry averages as a guide, based on our estimates, the property (hotel and retail wing) could be valued at close to S$277.8m-S$292.0m, implying an initial yield of c5.6-5.9%, which is higher than FEHT’s current implied yield of c5.4%. Hence, this deal is likely to be accretive. We note that FEHT’s non-credit rated status means debt-funded headroom of c.S$200m (to 35% gearing ratio). As such, we believe the manager could consider obtaining a credit rating in order to improve the trust’s financial flexibility and move above the 35% gearing threshold in the near term.

BUY, TP S$1.10. We have kept our numbers intact and not factored in this acquisition pending further details for this deal. At current levels, FEHT offers an attractive 6.1-6.3% yield with potential upside to our numbers upon completion of this deal. Maintain BUY.

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