Far East Hospitality Trust: Poised for Robust Recovery as Singapore Tourism Rebounds

Lim & Tan Securities | 21 March 2025

Consistent Performance Amidst Challenges

In its FY2024 annual report, Far East Hospitality Trust (Far East H-Trust) delivered a stable financial performance, with gross revenue increasing 1.8% year-on-year to S$108.7 million. The Commercial Premises segment showed a marked improvement, while the master lease rentals from the Hotels and Serviced Residences portfolio recorded a modest increase.
Despite higher property tax expenses, net property income grew 0.6% year-on-year to S$99.3 million. However, income available for distribution declined to S$66.6 million due to higher net finance costs and a strategic reduction in the proportion of the REIT Manager’s fee paid in Stapled Securities from 90% to 60%, aimed at mitigating longer-term dilution effects. Excluding this adjustment, income available for distribution would have been 4.8% higher at S$69.8 million.

Proactive Initiatives and Prudent Measures

To mitigate the impact of these factors, the REIT Manager made an additional distribution of S$8.0 million to share the gains arising from the divestment of Central Square, and another S$8.1 million to buffer the higher interest cost and support the change in the REIT Manager’s fee structure. As a result, distribution to Stapled Securityholders amounted to S$81.4 million, a slight decline of 0.6%. Distribution per Stapled Security stood at 4.04 cents, representing a yield of 7.2%.

Operational Improvements Across the Portfolio

The trust’s hotel portfolio benefited from higher visitor arrivals, with leisure travelers leading a 1.4-fold increase in revenue contribution from the year before. Average occupancy improved by 0.9 percentage points to 81.0%, while the Average Daily Rate (ADR) rose by 4.5% to S$178. These improvements led to a 5.7% increase in Revenue per Available Room (RevPAR) to S$144.

Strengthening the Balance Sheet

As of 31 December 2024, the Trust maintained a strong balance sheet with total borrowings of S$718.1 million and an aggregate leverage at 30.8%, reflecting an improvement from 31.3% a year ago. This places Far East H-Trust among the lowest-geared S-REITs, underscoring its financial resilience. During the year, term loans of S$157.2 million due in April and November 2025 were successfully refinanced into sustainability-linked loans ahead of their maturity dates. The weighted average debt to maturity decreased slightly from 3.8 years to 3.7 years, and 57.9% of borrowings are hedged at fixed interest rates to manage exposure to interest rate volatility.

Positive Outlook Driven by Tourism Recovery

Looking ahead, global economic growth is expected to continue supporting the hospitality sector’s recovery in 2025. The International Monetary Fund forecasts global GDP growth at 3.3%, with China and the ASEAN-5 economies projected to expand at 4.6% and 4.5%, respectively.
On the tourism front, the Singapore Tourism Board has forecasted higher international visitor arrivals of between 17.0 and 18.5 million travelers in 2025, representing a 3.0% to 12.1% year-on-year increase. Singapore’s strong reputation for safety, accessibility, and reliability continues to make it an attractive destination for both business and leisure travelers. The city’s emergence as a key entertainment hub, alongside an increasing number of large-scale performances and experiential tourism offerings, is expected to further elevate its global appeal.

Attractive Valuation and Upside Potential

At Far East Hospitality Trust’s last traded price of 56 cents, it is capitalized at $1.1 billion and trades at an undemanding price-to-book of 0.6x and a dividend yield of 7.2%. The consensus 1-year target price is 70 cents, implying a potential return of 25%, justifying an “Accumulate” rating.