Far East Hospitality Trust and Peer Analysis

Broker: CGS International

Date: February 13, 2025

Far East Hospitality Trust (FEHT): A Resilient Recovery Story

Far East Hospitality Trust (FEHT) continued its recovery journey in FY24, reporting a stable performance across its portfolio. While the FY24 dividend per stapled security (DPS) of 4.04 Singapore cents fell slightly below forecasts at 96% of the projected value, its hotel revenue per available room (RevPAR) grew by 5.7% year-on-year (yoy), driven by higher room rates. The trust’s performance was supported by the ramp-up of hotels exiting government contracts and ongoing recovery in the hospitality sector.

Despite a slight dip in servicing residence revenue per available unit (RevPAU), attributed to lift upgrading works at Village Residence Robertson Quay, the trust expects stable performance in FY25. The management remains optimistic about positive pricing trends as normalcy returns to the market. Additionally, FEHT’s joint venture in three Sentosa hotels contributed S\$1.6 million in interest income, reflecting stabilization in its joint venture portfolio.

While gearing and the average cost of debt remained stable at 30.8% and 4.1%, respectively, the elevated interest environment continues to pose challenges for asset transactions. However, the trust remains open to overseas acquisitions, including Japan, to drive future growth. The recommendation for FEHT remains “Add,” with a lower dividend discount model (DDM)-based target price (TP) of S\$0.74. Downside risks include lower-than-expected leisure or corporate travel demand.

Key FY24 Financial Highlights for FEHT:

• Gross Property Revenue: S\$108.7 million (1.8% yoy growth)
• Net Property Income: S\$99.3 million (0.6% yoy growth)
• Net Profit: S\$49.8 million
• DPS: 4.04 Singapore cents
• Dividend Yield: 6.68%
• Hotel RevPAR: S\$144.0
• Serviced Residence RevPAU: S\$228.0

CapitaLand Ascott Trust (CLAS): A Solid Performer

CapitaLand Ascott Trust (CLAS) demonstrated resilience in the hospitality segment. With a current price of S\$0.88 and a target price of S\$1.18, it offers an upside of 34.1%. The trust’s dividend yield projections for FY24, FY25, and FY26 stand at 7.0%, 7.2%, and 7.8%, respectively. Its market capitalization of US\$2.45 billion and gearing of 38.3% reflect its strong financial positioning. The recommendation for CLAS remains “Add.”

CDL Hospitality Trust (CDREIT): A Strategic Recovery

CDL Hospitality Trust (CDREIT) also earned an “Add” recommendation, with its target price set at S\$1.07 against a current price of S\$0.82. This represents a 30.5% upside. The trust’s dividend yield is forecasted at 6.5% for FY24, growing to 7.7% by FY26. CDREIT’s market capitalization sits at US\$762 million, with a leverage ratio of 38.8%.

Frasers Hospitality Trust (FHT): Focus on Stability

Frasers Hospitality Trust (FHT) is not rated in this report, but its financial stability is highlighted. With a current price of S\$0.55, its dividend yield is projected at 4.1% for FY24, increasing to 4.8% by FY26. FHT holds a market capitalization of US\$773 million and a leverage ratio of 39.3%.

A Comparative Look at Industrial REITs

The industrial REIT sector showcases strong dividend yields and stable financials:

• AIMS AMP Capital Industrial REIT: Not rated, with a dividend yield of 7.4% for FY24.
• CapitaLand Ascendas REIT: “Add” recommendation, with a target price of S\$3.10 and a dividend yield of 5.8% for FY24.
• Frasers Logistics & Commercial Trust: “Add” recommendation, with a target price of S\$1.35 and a dividend yield of 7.8% for FY24.

Retail REITs: Stable Returns

The retail REIT landscape remains promising, with strong dividend yields and growth potential:

• CapitaLand Integrated Commercial Trust: “Add” recommendation, with a target price of S\$2.45 and a dividend yield of 5.5% for FY24.
• Frasers Centrepoint Trust: “Add” recommendation, with a target price of S\$2.68 and a dividend yield of 5.7% for FY24.
• Starhill Global REIT: “Add” recommendation, with a target price of S\$0.60 and a dividend yield of 7.5% for FY24.

Overseas-Centric REITs: Growth Opportunities

Overseas REITs offer diversified opportunities, with high dividend yields:

• CapitaLand China Trust: Not rated, with a dividend yield of 8.4% for FY24.
• Elite UK REIT: “Add” recommendation, with a target price of S\$0.35 and a dividend yield of 9.4% for FY24.
• Sasseur REIT: “Add” recommendation, with a target price of S\$0.93 and a dividend yield of 9.0% for FY24.

Healthcare REITs: A Focus on Parkway Life

Parkway Life REIT remains a strong player in the healthcare segment, earning an “Add” recommendation. With a target price of S\$4.91 and a dividend yield of 3.8% for FY24, it showcases stability and growth potential.

Conclusion

The REIT sector continues to present a mix of recovery stories and stable performers across various segments. With a focus on Far East Hospitality Trust and its peers, the report highlights the potential for growth, stable returns, and diversification. Investors are encouraged to evaluate these opportunities based on their risk appetite and financial goals.