From SGX,

PUBLIC OFFER

Summary

• 14.6x subscribed for Public Offer (50,000,000 Units Available)
• Stabilizing Units = 65,873,000 Units (Stabilizing Action for max. 30 Days)
• Listing on 27 Aug 12 (Mon) 2pm

New local tourism proxy

FEHT stands out among hospitality trusts in Singapore for its pure local exposure and potential for improved yields. It has one of the strongest acquisition pipelines among the hospitality trusts, offering growth visibility all the way till 2016.

Its offer price of S$0.93 translates to yields of 6.0-6.3% for FP12-FY13 and 1x P/BV. This is priced near the forward yields of 6.0-6.2% and 1.2x P/BV for its closest peer, CDLHT, previously the main liquid proxy for the buoyant local tourism industry.

New proxy

After its listing on 27 Aug, FEHT will be the first and only Singapore-focused hotel and serviced residence hospitality trust listed locally. Prior to this, CDLHT was the chief proxy for the buoyant local tourism industry. FEHT’s listing will provide an alternative. FEHT stands out for its pure local exposure, room for organic growth through improved yields and ROFR pipeline from its sponsor. Its positioning and asset locations are arguably not as strong as CDLHT’s, though this could present upside from improved yield management and asset enhancement.

Strongest local acquisition pipeline

FEHT has one of the strongest local acquisition pipelines among locally-listed hospitality trusts. These include ROFR to seven local assets (three hotels and four residences) at a time when accretive third-party assets

are hard to find. This pipeline provides acquisition visibility all the way until 2016. Acquisitions could reinforce FEHT’s local hospitality positioning.

Priced near closest peer

FEHT’s shareholding structure is tight with its sponsor holding 52/56% stakes (depending on whether the over-allotment option is exercised) and cornerstone investors holding another 23.5%. The institutional offering has been over 30x subscribed, closing at S$0.93, the top end of its pricing range. At pro-forma yields of 6.0-6.3% for FP12-FY13 and 1.0x P/BV, FEHT is priced near its closest peer, CDLHT, which trades at 1.2x P/BV and forward yields of 6.0-6.2%, assuming 90% payouts.

Hotel REIT's Comparison Table

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.