3 things you have to know about FEHT's Rendezvous deal

Acquisition price pegged at S$264.5m.

According to DBS Group Research, Far East Hospitality Trust (FEHT) this morning gave further details and forecasts on the proposed acquisition of Rendezvous Grand Hotel Singapore and Rendezvous Gallery from Straits Trading Company limited. 

Here's more:

Salient points on this proposed acquisition:

1) Acquisition price. The agreed acquisition price for the property is S$264.5m, which is a 2-5% discount to two appointed valuers’ appraised value of the property (Colliers: S$277m, JLL S$268.5m).

Upon completion of this acquisition, the property will be master leased to the sponsor , Far East Organization, under a management contract as the operator of the hotel for an initial period of 20 years, with an option to renew for another 20 years.

The hotel component is estimated to be acquired at S$217m, implying S$728,000/key valuation. The Gallery wing will be acquired at S$47.7m or at S$1,900 psf.

(2) Master lease arrangement with downside protection. The hotel will be leased to FEHT's sponsor to manage for a period of 20 + 20 years. The lease arrangement is fairly similar to its original portfolio, where FEHT will receive the higher of a fixed rent of S$6.5m per annum ( floor) and a variable rent pegged to 33% of gross revenue + 25% of GOP less fixed rent.

RevPAR for the hotel is estimated to be S$166/night, which we believe it to be a conservative estimate compared to the average RevPAR of S$ 227/night for the upscale hotel segment in 1Q13 (rates currently quoted are north of S$200/night). Thus, with management looking to actively manage its tenant mix, we can reasonably expect the hotel to play catch-up with the industry in the medium term and perform well on this front.

(3) Estimated accretion of 0.7% - 1.9%. The purchase will be funded through a combination of debt and newly-issued equity (to STC and sponsor, Far East Organization).

Based on illustrations provide, assuming it to be funded on a 50%-50% debt/equity ratio basis, FEHT's gearing ratio is expected to rise from 29% to 31% (60% limit as the trust has obtained a credit rating).