The group&rsquo s focus on student housing and hospitality has boosted growth, despite economic uncertainty and volatility 

 

SINCE Alan Tang took on the mantle of Far East Orchard&rsquo s (FEOR) chief executive officer in 2020, the group has been hard at work in building its lodging platform, honing in on student housing and hospitality to deliver growth and returns. And that has reaped results.

 

For the first nine months of its latest financial year ended September (9M FY2024), FEOR&rsquo s earnings have more than doubled year on year to S$16.9 million, from S$7.6 million in the first nine months of FY2023.

 

9M FY2024 revenue was up 4.5 per cent to S$140.1 million, from S$134.1 million in the same period last year. Revenue for 9M FY2024 was around 76.3 per cent of FY2023&rsquo s full-year revenue of S$183.6 million.

 

For comparison, FEOR recorded earnings of S$1.5 million on revenue of S$112.2 million in FY2020 &ndash the first full-year following Tang&rsquo s appointment to the helm.

 

Tang attributed much of the growth to the group&rsquo s clear vision and mission of being an enduring real estate enterprise in Singapore, delivering steadfast growth to stakeholders.  

 

From that came the FEOR 25 strategy, the company&rsquo s current five-year plan to grow its recurring income stream by riding on hospitality and student accommodation &ndash chosen based on its existing niche in the two sectors, said Tang. 

 

He pointed out that the two sectors are complementary as well, with hospitality assets being generally resilient to inflation since &ldquo people will always want to travel&rdquo , while purpose-built student accommodations (PBSA) are &ldquo good natural diversifiers&rdquo and a countercyclical tool to hotels and the like. 

 

The UK&rsquo s PBSA market &ndash where most of FEOR&rsquo s beds are &ndash has a structural supply-demand gap that makes it a favourable market to continue exploring, Tang added. &ldquo Demand will continue to outstrip supply with projected full-time undergraduates growing at a faster pace than PBSA pipelines, and this will continue to fuel rental growth.&rdquo  

 

Tackling targets

Under the FEOR 25 strategy, the group aims to grow its hospitality and PBSA portfolios to 25,000 rooms and 5,000 beds, respectively, by 2025.

 

It also planned to grow its lodging platform into a &ldquo vertically integrated ecosystem spanning key capabilities such as asset management, operations and investment&rdquo across the business, said Tang. &ldquo (This) also gives us the leeway to expand our business segments horizontally to other accommodation types and services.&rdquo

 

Currently, Tang said, the group is on track to hit most of its targets, but there are admittedly some wins and some losses. 

 

In the hospitality sector, for instance, FEOR now has more than 17,000 operational rooms across its entire hospitality portfolio with 1,400 rooms in the pipeline. That puts the total at nearly 19,000 rooms, still some way to go to reach the 25,000 rooms it hoped to have by next year.

 

&ldquo Even with one year to go, that&rsquo s still quite a stretch, I would say,&rdquo Tang acknowledged. 

 

On the other hand, the group has about 3,700 operational beds in its PBSA portfolio, with another thousand under development. This works out to just under 5,000 beds &ndash well before the 2025 deadline. 

 

Furthermore, FEOR acquired in April a 49 per cent stake of Homes For Students, a UK-based PBSA operator managing over 40,000 beds across the UK.

 

Writing the next chapter

Meanwhile, the group&rsquo s plan for the next five years after 2025 is still up in the air. What is certain is that FEOR&rsquo s next five-year strategy will continue building on its vision and mission, said Tang. 

 

Tang added that the group will also remain agile and flexible to pivot if necessary. 

 

This could mean diversifying its lodging platform beyond hospitality and PBSA, especially since there are many other sectors to potentially explore, such as co-living and build-to-rent accommodation. 

 

Even within the PBSA and hospitality segments, Tang noted that there is still room for growth and expansion across other geographies. 

 

He cited Japan as an example for hospitality &ndash covering the cities of Tokyo, Osaka and Fukuoka would give the group five to 20 properties easily, since the market is so large and deep, said Tang.  

 

On the PBSA front, he noted that with the Homes For Students operating platform in the UK, the group could expand to other European cities, as they are on the same side of the pond. 

 

But he emphasised that the group &ldquo cannot just be fixated on lodging&rdquo assets. &ldquo Right now, the focus is not on (property development or investment, two of FEOR&rsquo s other business segments), but it doesn&rsquo t mean it will never be,&rdquo he said. 

 

In the meantime, he highlighted the importance of staying true to the group&rsquo s long-term goals over chasing short-term profits. &ldquo It is a fairly deliberate act to keep the longer-term picture in mind &ndash sticking to it and now we&rsquo ve seen some fruits.&rdquo  

On Sep 27, Far East Orchard : O10 0% chair and non-executive director Koh Kah Sek acquired 90,000 shares at an average price of S$1.02 apiece. This took her direct interest to 0.02 per cent. As she is directly associated with Far East Organization, which is a substantial shareholder of the company, she is also considered by the board to be non-independent. 

 

Koh is also an executive director and the chief financial officer of Far East Organization, where she is responsible for financial affairs, including corporate finance, treasury, overseas investments, risk management and capital management, while also overseeing the corporate function of the group&rsquo s legal division.

 

For its H1 FY2024 (ended Jun 30), Far East Orchard reported that its revenue increased by 7 per cent from H1 FY2023 to S$97.3 million, with the purpose-built student accommodation (PBSA) business segment contributing the highest increase of S$5.5 million.

 

Net profit more than doubled to S$19.7 million, driven by higher contributions from the PBSA segment and joint ventures, despite higher interest expenses. As at Jun 30, 2024, the group maintained a healthy cash position of S$197.6 million, down from S$225.6 million due to its acquisition of a 49 per cent stake in Homes for Students, a PBSA operator in the UK. 

 

With the results, Far East Orchard CEO Alan Tang highlighted the expansion of the group&rsquo s investment and asset management capabilities, noting that the acquisition of the Homes for Students stake marked a significant milestone for the business. This acquisition is set to advance the group&rsquo s &ldquo Feor 25&rdquo strategy and bolster its position in the UK PBSA sector.

Sats again led the buyback consideration tally over the five sessions to Oct 3, with 2.7 million shares purchased at an average price of S$3.70 apiece

 

INSTITUTIONS were net buyers of Singapore stocks over the five trading sessions spanning Sep 27 to Oct 3, with S$50 million of net institutional inflow, reversing the preceding five sessions of net outflow. 

 

Leading the net institutional inflow over the five sessions to Oct 3 were Singapore Exchange : S68 +0.86%, Mapletree Pan Asia Commercial Trust : N2IU -1.31%, Singapore Airlines : C6L -0.75%, Mapletree Logistics Trust : M44U -0.68%, Keppel : BN4 +0.45%, Genting Singapore : G13 +1.14%, CapitaLand Investment : 9CI +0.97%, Wilmar International : F34 +1.52%, Jardine Matheson : J36 +0.96% and Sats : S58 +1.06%.

 

Meanwhile, UOB : U11 +0.47%, DBS : D05 +0.53%, Yangzijiang Shipbuilding : BS6 +0.81%, OCBC : O39 -0.2%, Thai Beverage : Y92 -0.95%, Singtel : Z74 -0.62%, Frasers Centrepoint Trust : J69U -0.43%, Venture Corporation : V03 +0.14%, Keppel DC Real Estate Investment Trust : AJBU 0% (Reit), and Frasers Logistics & Commercial Trust : BUOU -0.85% led the net institutional outflow. 

 

The five sessions also saw 16 primary-listed companies conduct buybacks with a total consideration of S$20.2 million, similar to the consideration in the preceding week. 

 

Sats again led the buyback consideration tally over the five sessions, acquiring 2.7 million shares at an average price of S$3.70 apiece. In the preceding five sessions, it bought 2.6 million shares at S$3.62 per share. Sats maintains that repurchased shares held in treasury can be transferred for share schemes without diluting existing shares. 

 

Seatrium : 5E2 +12.43%also continued at the same pace, buying back 1.09 million shares, taking the cumulative percentage of issued shares (excluding treasury shares) acquired on the current mandate from 0.4 per cent to 0.44 per cent. 

 

Digital Core Reit Management took a break from acquiring units of Digital Core Reit : DCRU -2.44% and announced it would publish a business and operational update for its Q3 FY2024 (ended Sep 30) after trading hours on Oct 23. 

 

The five trading sessions saw more than 120 director interests and substantial shareholdings filed for close to 50 primary-listed stocks. Directors or CEOs filed 19 acquisitions and no disposals, while substantial shareholders filed nine acquisitions and five disposals. 

 

It has a target aggregate commitment of £ 100 million

 

Far East Orchard' s purpose-built student accommodation portfolio in the UK is the key driving force behind the group' s revenue and net profit growth in FY2023.

FAR East Orchard has established its first private fund in Singapore, and completed its first closing of £ 70 million (S$120.1 million) on Thursday (Aug 22).

 

The company announced that the fund, called the FE UK Student Accommodation Development Fund, will invest in purpose-built student accommodation (PBSA) development opportunities in the United Kingdom.

 

The fund has a target aggregate commitment of £ 100 million.

 

Currently, the company said that the fund is seeded with a development site in Glasgow, Scotland, where a 273-bed student accommodation project will be constructed. The site was previously acquired by the group in March 2024.

 

Far East Orchard noted that the local UK student population is currently at its highest level. Projections provided by the Higher Education Policy Institute forecast an additional 358,000 university places needed by 2035, it said.

 

Furthermore, it said that the group&rsquo s PBSA portfolio&rsquo s reservations stood at 92 per cent for the academic year commencing September 2024, reflecting &ldquo strong continued demand&rdquo for student accommodation.

In April 2024, the company announced that it had acquired a 49 per cent stake in independent PBSA operator Homes For Students. It said that the move would enhance the operating management capabilities of the group&rsquo s PBSA business and strengthen its position in the UK PBSA sector.

 

Far East Orchard group chief executive Alan Tang said: &ldquo Moving into the fee-based investment management business is a natural progression in addition to our current operating fee-based model to leverage our investment and asset management capabilities in the PBSA business in the UK.

 

&ldquo It allows the group to grow its recurring income stream as it steers towards an asset-light business model, ultimately reducing its balance sheet exposure and delivering greater sustainable value to shareholders.&rdquo

Revenue for the period stands at S$97.3 million, up 7.1% from first half of 2023

 

FAR East Orchard : O10 0%&rsquo s net profit more than doubled to S$18.2 million for the first half of 2024, from S$8.2 million in the year-ago period. 

 

The group&rsquo s purpose-built student housing accommodation (PBSA) segment grew by 22.8 per cent during this period, bringing total revenue for H1 to S$97.3 million, Far East Orchard said on Tuesday (Aug 13). This was 7.1 per cent higher than the S$90.9 million recorded in the first half of 2023. 

 

The group benefited from rental growth across most of its PBSA portfolio, underpinned by faltering supply and high demand from students for housing, Far East Orchard said. 

 

In April, the group acquired a 49 per cent stake in Homes For Students, which has enhanced Far East Orchard&rsquo s operating capabilities and strengthened its position in the PBSA sector.

 

Far East Orchard said: &ldquo The hospitality business segment, which contributed a majority of S$62.4 million to revenue, continued to provide stable contributions with a slight uplift from the group&rsquo s leased portfolio in Japan.&rdquo  

 

For the second half of 2024, the group noted that with the volatile macroeconomic climate and mounting geopolitical tensions, travel recovery will face headwinds with the slowdown in discretionary travel spending. 

 

Nevertheless, it remains cautiously optimistic about the mid-term outlook of international travel demand. The group&rsquo s pipeline of hotel openings includes Quincy House Singapore and The Eve Hotel Sydney, which are expected to open in Q4. 

 

Meanwhile, student numbers in the United Kingdom are at record highs, with a current shortfall of 580,000 beds in the country. 

 

&ldquo With the limitations in PBSA supply, it is the group&rsquo s view that the UK PBSA sector remains favourable with its structural supply-demand gap, and the group continues to explore suitable opportunities in the UK to address the imbalance in student beds,&rdquo Far East Orchard said. 

 

Earnings per share in H1 stood at 3.74 Singapore cents, up from 1.73 Singapore cents a year ago. No dividend was declared for the half year, unchanged from before. 

 

SAC Capital analysts June Yap and Matthias Chan have highlighted Far East Orchard O10 -0.5% &rsquo s strategic partnerships and ongoing asset-light expansion.

 

In their July 19 report, the analysts note Far East Orchard&rsquo s performance for the 1QFY2024 ended March 31 and moves so far.

 

In its 1QFY2024 business update, Far East Orchard reported a revenue of $50.9 million, 10.4% higher y-o-y. Its net profit surged by 54.8% y-o-y to $6.5 million. In FY2023, the group also saw revenue and net profit improve 30.3% y-o-y to $183.6 million and 207.4% to $66.1 million, respectively. This significant increase in net profit came on the back of fair value gains from purpose-built student accommodation (PBSA) investment properties and underlying income growth.

 

Far East Orchard also announced, in April, that it acquired a 49% stake in Homes For Students Limited, the UK' s largest independent PBSA operator, enhancing its recurring income stream and fortifying its market position.

 

They add that the group&rsquo s PBSA portfolio continues to experience strong demand, with near-full occupancy and ongoing development projects, such as a new PBSA site in Glasgow. 

 

Favourable demand-supply dynamics and support from strong domestic and international student demand, have become growth drivers of Far East Orchard&rsquo s UK sector. Additionally, the group has also reported a 40.5% increase in revenue for its hospitality business, which stands at $126.9 million, following higher occupancies and average daily rates as international travel begins to rebound. 

 

See also: Analysts mixed on ThaiBev after &lsquo long expected&rsquo proposed share swap with TCC Assets

 

The company has since expanded its footprint by opening six new hotels, totaling over 750 rooms, across Australia, Japan, Malaysia, and Switzerland.

 

&ldquo In 2024, the group is on track to open approximately 600 rooms across the Asia-Pacific and Europe, bringing their room count to over 17,000,&rdquo add the analysts. 

 

Far East Orchard&rsquo s current price-to-book (P/B) stands at 0.4 times which trades favourably compared to its peers which are trading closer to 0.6 times and the Mainboard&rsquo s current P/B of 1.2 times. 

 

That said, potential risks identified by the analysts include persistent inflation and high-interest rates increasing transport and accommodation costs volatile oil prices and trade disruptions affecting overall travel expenses weak consumer sentiment due to high costs impacting travel behavior and geopolitical risks challenging the group' s positive medium-term outlook