FE-HTrust – Lim and Tan

IPO 93¢

• We would recommend Subscribe, despite the consensus (as reflected in media coverage in recent days) that it is a worthwhile investment, hence the pricing at the absolute top end of the indicative range.
• The key point is the indicative first year yield of 6%.
• Fact that at least 60% of the base income is "guaranteed" by the master-lease arrangement, suggests "worst-case" yield of under 4%. (Note: yields of reits are not guaranteed as recently pointed by a local analyst.)
• We are not unduly concerned that Orchard Parade Hotel''s lease runs out in has 50 years. (OPH is the largest asset in FEH's portfolio, accounting for about a third.)
• Or for that matter that OPH is being valued at $1 mln a key vs $686,000 for Orchard Hotel, owned by CDL Hospitality. A possible reason is that unlike Orchard Hotel, OPH does not separate contributions from the asset into retail and hotel.
• 329.4 mln units will be offered to institutional investors and the public; and 376.3 mln units to cornerstone investors, which include Aberdeen Asset (value fund) and AIG (insurance).
• FEH's initial portfolio will comprise 7 hotels (including OPH, Albert Court Village) and 4 serviced residences.
• One casualty, if we can call it that, would be Ascendas Hospitality, now trading cents off IPO price.