Far East Orchard Limited aka Orchard Parade Holding

[yeokiwi]

The 3 assets sold generated 27m in profits for FY2011, they are sold for 702m (page 11 in the attachment below). but the problem here is it takes great optimism to sell at such a high price. Will you buy into such a reit with p/e around 26, i wouldnt. Moreover, the properties are not freehold.

Actually, Orchard Parade Hotel is mostly freehold. What's injected into the REIT, however, is only 50 years of the lease. This is similar to Parkway REIT's hospitals.

Indeed, the valuation of $702m looks rich. As a reference, CDL H-Trust is trading at a 6% yield. This is likely why the REIT is selling as a "stapled security". Maybe they'll stapler Greek bonds together with this, to prop up the yield It's also possible that OPHL will pay higher than market rate for the leaseback as well.

The best comparison is CDL Hospitality trust.
The yield is around 6% and the Price to book ratio is around 1.2.
The interest that CDL HT is paying is around 2.8%.

With some changes in market rate for leaseback, gearing and interest rate control in the first few years(like how the banks offer our condo crazy singaporeans), it should be possible to achieve a yield of 6% for the 3 hotels with the selling price of 702million.