All segments of FEHT&rsquo s portfolio grew in the latest half-year period on leisure demand and the return of international visitors

 

FAR East Hospitality Trust : Q5T -1.57% (FEHT) posted a 2.1 per cent increase in distribution per stapled security (DPS) to S$0.0196 for the first half ended Jun 30, from S$0.0192 in the year-ago period.

 

Distribution to stapled security holders grew 2.7 per cent year on year to S$39.5 million. This came on the back of higher net property income (NPI) and the distribution of other gains from the trust&rsquo s divestment of Central Square, its manager said on Tuesday (Jul 30).

 

The distribution also includes a pay-out of S$2.2 million related to an additional payment of S$18 million, which the stapled group received last year as an incentive fee for its Central Square divestment.

 

The distribution will be paid out on Sep 5, after books closure on Aug 7. 

 

FEHT&rsquo s NPI over the first half was up slightly by 1 per cent to S$49.5 million from S$49 million in H1 2023. Its manager noted that gains in NPI were partially offset by higher property taxes.

 

Gross revenue for the half-year period grew 3.4 per cent year on year to S$53.8 million from S$52 million. This top line growth was mainly driven by higher contributions from the hotel segment.

 

Meanwhile, income available for distribution for the first half fell 9.3 per cent year on year to S$33.9 million from S$37.4 million, mainly due to higher interest expense.

 

Income available for distribution would have been 4.7 per cent higher at S$35.5 million if not for the change in proportion of the manager&rsquo s fees paid or payable from 90 per cent to 60 per cent.

 

Gerald Lee, chief executive officer of the manager, noted that all segments of FEHT&rsquo s portfolio grew in the latest half-year period, led by leisure demand and the return of international visitor arrivals.

 

Average daily rates (ADRs) rose 3.7 per cent in the hotel segment to S$176 from S$169 in H1 FY2023, and 4.9 per cent for serviced residences to S$266 from S$253 previously.

 

This was largely attributed to demand derived from major events and large-scale performances, as well as a higher proportion of short-stay leisure travellers booking at higher rates.

 

Coupled with increased average occupancy, hotel revenue per available room grew 6.4 per cent year on year to S$141.

 

While average occupancy in serviced residences dipped 3.2 percentage points for the latest half-year period, revenue per available unit in this segment inched up 1 per cent to S$226.

 

FEHT&rsquo s total debt stood at S$717.7 million as at end-June after the prepayment of S$23.6 million in term loans. Aggregate leverage also improved to 30.8 per cent compared to Dec 31, 2023.

 

Its average cost of debt rose to 4.1 per cent per annum, driven by higher interest rates compared to the year before. As at Jul 30, some 35.9 per cent of total debt was secured at fixed interest rates. This figure was set at a lower percentage as expectations of interest rate cuts rise, said the manager.

 

Looking ahead, Lee is positive on the future prospects of the hospitality industry.

 

&ldquo With the various strategic portfolio enhancements and prudent capital management, the trust is well-positioned to ride on the growth of the Singapore hospitality sector, notwithstanding the potential impact of the strong Singapore dollar which may moderate the expected pace of growth,&rdquo he added.

A joint redevelopment of the Reit&rsquo s Orchard Rendezvous Hotel with the Tanoto family&rsquo s Tanglin Shopping Centre could revitalise the sleepy Orchard-Tanglin corner

 

FAR East Hospitality Trust : Q5T -0.81% (FEHT) offers one of the few remaining pure-play Singapore real estate investment trusts (S-Reits), which would appeal to investors averse to risks in overseas property markets.

 

The stapled group &ndash backed by the Far East Organization group, controlled by the family of the late tycoon Ng Teng Fong &ndash owns a string of hotels and serviced residences in Singapore.

 

FEHT&rsquo s aggregate leverage of 31.5 per cent as at Mar 31, 2024, reflects one of the lowest gearing among S-Reits. This, along with an interest coverage ratio of 3.4 times, should provide comfort to investors in these times of high interest rates.

 

The stapled group has posted a progressive recovery in distribution per stapled security in the past few years, on the back of the reopening of Singapore post-Covid and the distribution of gains from the divestment of Central Square.

 

Like many other S-Reits and Singapore property groups, however, the counter is trading well below its net asset value (NAV). FEHT&rsquo s S$0.615 closing price on Monday (Jun 24) reflects a nearly 33 per cent discount to its S$0.915 NAV per stapled security as at Mar 31, 2024.

 

Revitalising the Orchard-Tanglin corner

However, a catalyst to the counter&rsquo s price may yet come, from a relatively sleepy stretch of the Orchard Road belt. At 1 Tanglin Road stands the Orchard Rendezvous Hotel, a property in the FEHT portfolio that may be ripe for redevelopment.

 

The property was formerly known as Orchard Parade Hotel, and prior to that as Ming Court Hotel when it was completed in 1970. Over the years, the hotel has been refurbished and upgraded but it may be opportune to shake things up a little in the area.

 

There has been market chatter that the Ng family behind FEHT is exploring the possibility of teaming up with the family of tycoon Sukanto Tanoto, which owns the Tanglin Shopping Centre site next door, for a joint redevelopment of the two sites.

 

Pacific Eagle Real Estate, a Singapore-based real estate investor and developer privately held by the Tanoto family, clinched Tanglin Shopping Centre in 2022 through a S$868 million collective sale. The office, retail and car parking complex was completed in two phases in the 1970s and early 1980s.

 

A joint redevelopment of these two sites could transform the corner of Orchard and Tanglin roads. The two potential partners could avail themselves of the Urban Redevelopment Authority&rsquo s (URA) Strategic Development Incentive (SDI) scheme.

 

Introduced in 2019, the scheme aims to spur owners of older adjacent commercial or mixed-use developments with predominantly commercial uses in strategic areas to join forces and comprehensively redevelop their properties into innovative projects that would &ldquo positively transform the surrounding urban environment&rdquo .

 

Eligible building owners and developers may seek a higher plot ratio (the ratio of maximum gross floor area to site area) as well as flexibility on land use and use quantum, and building height.

 

The Orchard Rendezvous Hotel is on 87,653 square feet (sq ft) of land zoned for hotel use under the URA Master Plan 2019. Next door, the 68,512 sq ft Tanglin Shopping Centre site is zoned commercial.

 

The combined land area of 156,165 sq ft offers potential for a sizeable new project, depending on the plot ratio that URA grants for a joint redevelopment of the two assets under the SDI scheme.

 

One could take reference from URA&rsquo s provisional permission last year for a proposed redevelopment of three nearby properties in the Hotel Properties Ltd (HPL) stable: the voco Orchard Singapore hotel, Forum The Shopping Mall and HPL House. The nearly 1.23 million sq ft total approved gross floor area for the proposed mixed development under the SDI scheme is nearly 8.14 times the total land area of nearly 151,000 sq ft.

 

A potential mixed-use integrated project in a joint redevelopment scheme for Orchard Rendezvous Hotel and Tanglin Shopping Centre may include hotel, retail and office spaces with some residences for sale to help partly finance the development.

 

Generating buzz

To make the project more unique, the Ng and Tanoto families could perhaps consider incorporating, say, a niche convention or concert venue. Some space could also be dedicated for philanthropic organisations to provide community services. An overall biophilic design including public spaces would help the project to ride on the locale&rsquo s proximity to the Singapore Botanic Gardens Unesco World Heritage Site. A carefully thought-out concept has a good shot at uplifting the area.

 

Orchard Rendezvous Hotel itself sits on four land lots &ndash three freehold sites (totalling about 76,140 sq ft) and a site of about 11,510 sq ft with 99-year leasehold tenure from April 1, 1965.

 

The hotel was injected into FEHT for its initial public offering in August 2012 by Far East Orchard (formerly known as Orchard Parade Holdings) the company granted a 50-year leasehold interest starting on Aug 27, 2012, in the freehold and leasehold land of the hotel to the trust. Upon expiry of the leasehold interests held by FEHT, title to the property will revert back to the vendor, that is, Far East Orchard.

 

Mainboard-listed Far East Orchard, which is also the master lessee of the Orchard Rendezvous Hotel under the FEHT structure, is a member of the Far East Organization group of companies, the sponsor of FEHT.

 

FEHT comprises a Reit and a business trust which has been dormant since FEHT&rsquo s listing in August 2012.

 

For a joint redevelopment of Orchard Rendezvous Hotel and the Tanotos&rsquo Tanglin Shopping Centre, FEHT could rope in Far East Orchard and/or other members of the Far East Organization group of companies.

 

Another possibility could be for a deal that allows FEHT to first sell the Orchard Rendezvous Hotel to a joint venture (JV) between the Far East Organization group and the Tanoto family. Once the JV has completed the mixed-use integrated development, FEHT could buy the hotel or hospitality component.

 

Under an update to the SDI scheme by URA on Apr 4, 2022, strata subdivision into individual units will not be allowed for the commercial component of a project approved under this scheme, except when it is to delineate between the different commercial uses, for example, between retail space and offices.

 

This is to encourage the upkeep and quality of developments, and it would be a positive for a party with a long-term horizon such as FEHT.

 

Participating in a project that will rejuvenate and transform the strategic corner of Orchard and Tanglin roads could generate more buzz in FEHT, and hopefully uplift its share price.

 

FAR East Hospitality Trust&rsquo s (FEHT) distribution per stapled security (DPS) for the second half ended December 2023 rose 25.4 per cent to S$0.0217, from S$0.0173 in H2 FY2022.

 

Gross revenue gained 28.6 per cent year on year to S$54.8 million. The stapled hospitality group registered higher revenue contributions across all business segments &ndash particularly in the hotel segment, where contributions grew 36.5 per cent to S$41 million.

 

Based on the stapled hospitality group&rsquo s H2 and full-year results released on Wednesday (Feb 14), revenue per available room (RevPAR) for hotels rose 19.9 per cent to S$140.

 

Average occupancy improved 2.6 percentage points to 81.7 per cent, resulting in a 16.1 per cent higher average daily rate (ADR) of S$171.

 

Within the serviced residences segment, revenue per available unit (RevPAU) improved 10.7 per cent to S$234. Average occupancy rose 0.9 percentage point to 87.4 per cent compared with the previous year, while ADR was up 9.5 per cent to S$267.

 

FEHT&rsquo s net property income (NPI) for H2 rose 24.8 per cent year on year to S$49.8 million, from S$39.9 million.

Over the latest half-year period, S$2.3 million of taxable income available for distribution was released to stapled securityholders.

 

As a result of the higher NPI and distribution of other gains, distribution to stapled securityholders increased 26.3 per cent to S$43.5 million in H2. 

 

For the full year, FEHT&rsquo s gross revenue rose 27.8 per cent on the year to S$106.8 million, while NPI was 27.7 per cent higher at S$98.7 million.

 

FY2023 hotel RevPAR was up 47.8 per cent to S$136, with average occupancy up 6.3 percentage points to 80.1 per cent, and ADR rising 36.1 per cent to S$170.

 

RevPAU for serviced residences grew 17 per cent to S$229, while average occupancy was up 0.3 percentage point to 87.8 per cent, with ADR rising 16.6 per cent to S$260.

 

Income available for distribution was up 27.3 per cent to S$75.1 million, resulting in a 25.1 per cent higher DPS of S$0.0409 compared with S$0.0327 in FY2022.

 

FEHT is a stapled hospitality group comprising a real estate investment trust (Reit) and a business trust which has been dormant since FEHT&rsquo s listing. 

 

Gerald Lee, chief executive of the Reit manager, noted that the stapled group&rsquo s FY2023 distribution income surpassed pre-pandemic levels in 2019. FEHT is &ldquo well-positioned to ride on the further recovery of the hospitality sector&rdquo , he added.

 

&ldquo While challenges remain in the short to medium term, the manager will continue to explore all opportunities to further grow revenue and distribution to stapled securityholders in the year ahead.&rdquo

 

As at end-December 2023, the stapled group&rsquo s investment property portfolio valuation stood at S$2.51 billion, up 2.6 per cent or S$59.2 million, from S$2.45 billion the prior year.

 

DBS Group Research said that the valuation gain was &ldquo well supported&rdquo by FEHT&rsquo s underlying cash flow with &ldquo further upside concentrated within the hotels segment&rdquo .

 

It believes the group&rsquo s hotel room inventory &ndash which hit an &ldquo operational ceiling&rdquo due to government quarantine contracts last year, along with rebranding and refurbishment works at certain assets &ndash should be fully released into the market going into 2024 to potentially command higher rates upon completions of asset enhancement initiatives.

 

&ldquo We see FEHT&rsquo s offerings within the upscale hotel tier to be in the sweet spot for the return of budget-conscious and corporate travellers, or the group of travellers that will be catalysed by flight recovery and moderation in ticket prices,&rdquo said analyst Geraldine Wong in a note on Wednesday.

 

In her view, the &ldquo pocket-friendlier&rdquo range of S$200 to S$300 per night will continue to appeal to the mass market segment travellers which the stapled group has the largest exposure to.

FAR East Hospitality Trust&rsquo s (FEHT) distribution per stapled security (DPS) for the second half ended December 2023 rose 25.4 per cent to S$0.0217, from S$0.0173 in H2 FY2022.

 

Gross revenue gained 28.6 per cent year on year to S$54.8 million. The stapled hospitality group registered higher revenue contributions across all business segments &ndash particularly in the hotel segment, where contributions grew 36.5 per cent to S$41 million.

 

Revenue per available room (RevPAR) for hotels rose 19.9 per cent to S$140. Average occupancy improved 2.6 percentage points to 81.7 per cent, resulting in a 16.1 per cent higher average daily rate (ADR) of S$171.

 

Within the serviced residences segment, revenue per available unit (RevPAU) improved 10.7 per cent to S$234. Average occupancy was boosted by 0.9 percentage point to 87.4 per cent compared with the previous year, while ADR was up 9.5 per cent to S$267.

 

FEHT&rsquo s net property income (NPI) for H2 rose 24.8 per cent year on year to S$49.8 million, from S$39.9 million. Over the latest half-year period, S$2.3 million of taxable income available for distribution was released to stapled securityholders.

 

As a result of the higher NPI and distribution of other gains, distribution to stapled securityholders increased 26.3 per cent to S$43.5 million in H2. 

 

For the full year, FEHT&rsquo s gross revenue rose 27.8 per cent on the year to S$106.8 million, while NPI was 27.7 per cent higher at S$98.7 million.

 

FY2023 hotel RevPAR was up 47.8 per cent to S$136, with average occupancy up 6.3 percentage points to 80.1 per cent, and ADR rising 36.1 per cent to S$170.

 

RevPAU for serviced residences grew 17 per cent to S$229, while average occupancy was up 0.3 percentage point to 87.8 per cent, with ADR rising 16.6 per cent to S$260.

 

Income available for distribution was up 27.3 per cent to S$75.1 million, resulting in a 25.1 per cent higher DPS of S$0.0409 compared with S$0.0327 in FY2022.

 

FEHT is a stapled hospitality group comprising a real estate investment trust (Reit) and a business trust which has been dormant since FEHT&rsquo s listing. 

 

Gerald Lee, chief executive of the Reit manager, noted that the stapled group&rsquo s FY2023 distribution income surpassed pre-pandemic levels in 2019.

 

FEHT is &ldquo well-positioned to ride on the further recovery of the hospitality sector&rdquo , he added.

 

&ldquo While challenges remain in the short to medium term, the manager will continue to explore all opportunities to further grow revenue and distribution to stapled securityholders in the year ahead.&rdquo

 

MAYBANK Securities and UOB Kay Hian (UOBKH) have raised their distribution per stapled security (DPS) estimates for Far East Hospitality Trust : Q5T +1.75% (FEHT) after the stapled group reported a set of positive third-quarter financial results.

 

While this has resulted in UOBKH&rsquo s price target rising to S$0.76 from S$0.71, Maybank lowered its target on the stapled group to S$0.75 from S$0.80.

 

On Thursday (Oct 26), Maybank analyst Krishna Guha said the price target reduction comes after introducing a higher discount rate to its three-stage dividend model used to value FEHT, which the research house continues to rate at &ldquo buy&rdquo .

 

The new price target imputes a risk-free rate of 3.3 per cent and cost of equity ratio of 7.2 per cent, which are both above the previous 2.8 per cent and 6.6 per cent, respectively.

 

Maybank nonetheless raised its FY2023 DPS estimates by 6 per cent to S$0.04, which translates to a DPS yield of about 7 per cent. Both FEHT&rsquo s DPS and yield are expected to remain at this level in FY2024 and FY2025.

 

&ldquo The (hospitality) sector continues to recover, albeit at a slower pace, and FEHT offers a stable distribution profile and a lowly geared balance sheet,&rdquo noted Guha.

 

&ldquo Management indicated a slower growth outlook for room rates, and RevPAR (revenue per available room) growth will depend on occupancy levels. Year-end valuations are likely to remain sticky. FEHT will look to acquire overseas assets, such as in Japan, which offer a healthy spread to local funding cost.&rdquo

 

UOBKH also raised its DPU forecasts for FY2023 to 9 per cent, and another 8 per cent for FY2024 to factor in the strong Q3 results, with expectations of S$0.5 million and S$3 million in capital distributions for FY2023 and FY2024, respectively.

 

The research house projects a DPS of S$0.041 for FY2023, representing a DPS yield of 7.2 per cent.

 

As a result, UOBKH&rsquo s price target was bumped up to S$0.76, which is based on a dividend discount model that assumes 2.8 per cent terminal growth and a cost of equity of 7.75 per cent.

 

Highlighting that the counter trades a price-to-book ratio of around 0.6 times to represent the lowest in UOBKH&rsquo s universe of hospitality Reits, analyst Jonathan Koh said the &ldquo steep discount&rdquo that FEHT is trading at against its net asset value is &ldquo unwarranted&rdquo .

 

This is in view of the stapled group&rsquo s good corporate governance, strong sponsor and low aggregate leverage as at end-September, he added.

 

In a separate report, CGS-CIMB reiterated its &ldquo add&rdquo rating for FEHT, while leaving its estimates and S$0.77 price target unchanged.

 

Its analysts highlighted that while FEHT&rsquo s Q3 cost of debt and gearing remained &ldquo stable&rdquo , the stapled group&rsquo s percentage of loans on fixed rates were &ldquo comparatively low&rdquo among its S-Reit peers.

 

The research house has forecast a DPS of S$0.038 for FY2023, which puts the resultant dividend yield at a lower 6.7 per cent compared with Maybank&rsquo s projections.

 

In the longer term, it expects the stapled group to report a DPS of S$0.043 for FY2024 and S$0.044 for FY2025.

 

Analysts are pleased with Far East Hospitality Trust (FEHT) Q5T -0.78% , citing its strong y-o-y growth as the group recorded healthy results for 1HFY2023 ended June.

 

The group achieved a 26.9% y-o-y growth in gross revenue of $52 million with a distribution per stapled security (DPS) of 1.92 cents, an improvement of 24.7% y-o-y. 2QFY2024 revenue grew 34.1% y-o-y to $26.9 million, driven by the hotel segment with a rise of 41.2% y-o-y or $5.9 million, whilst revenue from service residence (SR) grew by $0.4 million or 16.3% y-o-y and both commercial and retail space revenue was up $0.6 million or 16.4% y-o-y.

 

On a same-store basis, 1HFY2023 revenue for hotel, SR and commercial spaces surpassed 1H2019 levels.

 

Following the strong set of results, analysts from CGS-CIMB Research and Maybank Research have kept their &ldquo add&rdquo and &ldquo buy&rdquo calls at unchanged target prices of 77 cents and 80 cents respectively.

 

CGS-CIMB&rsquo s Natalie Ong notes that while room rates trended close to historical highs in 1HFY2023, occupancy lagged at 78%. The 2QFY2023 hotel revenue per available room (RevPAR) of $131 reached 91.8% of 2019 levels.

 

Meanwhile, FEHT&rsquo s hotel RevPAR lagged behind its peers, with both CapitaLand Ascott Trust (CLAS) and CDL Hospitality Trusts (CDLHT) at 127% of 2QFY2019 levels due to the three hotels in the gestation period which exited their respective government block-booking contracts in early March.

 

In FEHT&rsquo s 2QFY2023 results briefing with analysts, management shared that 2QFY2023 hotel RevPAR (excluding gestating hotels) reached 106% of 2QFY2019 levels. The three hotels that exited government block-booking contracts in March are ramping up well, with one of the hotels achieving occupancy of 60% within its first month of public bookings.

 

Notably, FEHT has one more hotel, Oasia Novena, that will remain under government contract until October. Given Oasia Novena&rsquo s central location, management is confident that demand will be healthy when it returns to the market for public bookings.

 

Meanwhile, Ong observes that SRs continued to hold up well, with a 2QFY2023 RevPAR of $224 (-0.4% q-o-q/+16.1% y-o-y), reaching 123.1% of 2QFY2019 levels.

 

The analyst also notes the group&rsquo s stable balance sheet, with 2QFY2023 gearing, average cost of debt and interest rate coverage all steady q-o-q at 32%, 3.2% and 3.6x respectively.

 

&ldquo In our previous report, we highlighted that geographical diversification would be a key re-rating catalyst for FEHT. In its 2QFY2023 results briefing with analysts, management shared that while FEHT&rsquo s low gearing of 32% and right of first refusal pipeline from the sponsor position it well for acquisitions, acquisitions in Singapore may not be sufficiently accretive amidst the high interest rate environment,&rdquo says Ong.

 

The group has elaborated its starting of overseas acquisitions opportunities evaluation and would prefer to gradually increase its overseas exposure over the next five years, up to a maximum of 20% of assets under management (AUM).

 

While the sponsor has assets in Australia and the UK, Ong understands the group will also look at deals from third-party sellers with limited service, mid-scale or upscale hotel assets in gateway cities.

 

In her view, catalysts for re-rating include geographical diversification, accretive acquisitions/divestments and faster ramp-up period for its hotels that have exited government block-booking contracts.

 

Meanwhile, Maybank analyst Krishna Guha attributes his positive rating to an improving visitor arrival environment in Singapore and the group&rsquo s existing lease structure.

 

Guha says: &ldquo Rebound of the local hospitality sector is likely to be sustained by the healthy pipeline of events and activities. Further, master lease structure and top-ups from divestment gains from Central Square will stabilise distribution in case of any speed bumps on the road to recovery.&rdquo

 

However, Guha also notes that FEHT&rsquo s q-o-q basis lagging of 2QFY2023 RevPAR should be closely observed.

 

&ldquo This may be due to seasonality but needs to be monitored in the light of slower-than-expected return of Chinese travellers, supply pipeline and plateauing of residential rents in Singapore,&rdquo opines the analyst.

 

Downside risks include lower-than-forecast leisure or corporate travel demand which would impact FEHT&rsquo s occupancy and room rates.