Maybank Research Pte Ltd
August 1, 2025

Far East Hospitality Trust: Navigating Softer Singapore Hospitality with Strategic Overseas Expansion

Overview: Key Takeaways from Far East Hospitality Trust’s Latest Results

Far East Hospitality Trust (FEHT), the first and only Singapore-focused hotel and serviced residence trust listed on the SGX, reported a challenging first half in FY25. Despite a maiden overseas revenue contribution from its new Japan property, softer Singapore hospitality conditions led to a decline in distributions. Management remains focused on capital management, strategic acquisitions, and maintaining robust governance standards as it navigates the evolving hospitality landscape.

Falling Distribution Amidst Softer Domestic Lodging Market

FEHT posted a 1H FY25 Distribution Per Unit (DPU) of SGD1.78 cents, a 9.2% decline half-on-half, attributed primarily to:

• Weaker performance from Singapore hotels and serviced residences, with local RevPARs (revenue per available room) falling by mid-single digit percentages.
• Reduced top-ups from divestment gains compared to previous periods.
• Partially offset by lower financing expenses, growth in commercial revenue, and maiden revenue from the newly acquired Japan hotel and car park assets.

Key Performance Metrics: 1H FY25 vs 1H FY24

Performance Drivers: Hotels, Residences, and Overseas Expansion

Singapore Hotels and Serviced Residences

• Hotel RevPAR declined 5.3%, mainly due to falling room rates amid softer corporate and leisure demand.
• Serviced residences saw a 6.5% drop in RevPAR, primarily from lower occupancy as a leisure-focused strategy failed to fully offset weaker corporate demand.
• Average daily rates (ADR) for hotels fell 4.5% to SGD168, while serviced residences ADR rose slightly by 1.5% to SGD270.
• Occupancy rates slipped for both segments: hotels at 79.4% (-1.0pp YoY) and serviced residences at 78.2% (-6.9pp YoY).

Japan Acquisition: Diversification and Growth

• The Japan hotel, acquired on April 25, contributed for the first time with a marginal 0.5% YoY RevPAR increase, while gross operating profit soared 22.9% thanks to strict cost discipline.
• Although not yet a contributor to distribution, the asset supports longer-term DPU growth and diversification.

Commercial Premises

• Commercial revenue grew 6.4%, helping offset weaker hospitality numbers.

Capital Management and Unit Issuance

FEHT maintains prudent capital management:

• Gearing stands low at 32.8%.
• Cost of debt fell to 3.4% with an increased proportion of fixed-rate debt at 60.6%.
• Interest coverage ratio (ICR) remains healthy at 3.1x.

Management will issue approximately 1.2% of current units to the sponsor as payment for the earn-out amount related to the 2018 Oasia Hotel Downtown acquisition, resulting in an advanced distribution of SGD0.97 cents to be paid alongside the 1H DPU.

Financial Forecasts and Target Price Revision

The outlook reflects cautious optimism:

• FY26 DPU is projected to rise 5% with contributions from Japan and new unit issuance.
• Lower cost of equity, driven by a fall in risk-free rates, supports a higher target price of SGD0.60 (up from SGD0.55).
• HOLD rating is maintained, reflecting challenging near-term hospitality conditions but improved long-term prospects.

Key Financial Forecasts (SGD m unless otherwise stated)

Valuation Methodology

FEHT is valued using a 3-stage dividend discount model (DDM), applying a cost of equity (COE) of 6.5%, revised down from 6.7% due to a lower risk-free rate. The valuation incorporates:

• Issuance of new units (about 1.2% of outstanding) and Japan acquisition (SGD52m).
• Estimated SGD10m in revenue and SGD2m in dividend contribution from the Japan hotel in FY26.
• An 8% increase in target price to SGD0.60, with the recommendation maintained as HOLD.

Strategic Value Proposition

• FEHT’s SGD2.5 billion portfolio (as of Dec 2023) includes 12 Singapore properties, 2,775 hotel rooms, and 240 serviced apartments.
• Backed by Far East Organisation, Singapore’s largest private property developer, offering a pipeline of 1,823 rooms for potential acquisition.
• Revenue mix is well-diversified across hotels, serviced residences, and commercial premises.

Financial Metrics and Price Drivers

• DPU CAGR of -0.7% forecasted between FY24 and FY27, reflecting market headwinds.
• Hotel RevPAR forecasted at SGD133 for FY25 and SGD130 for FY26; serviced residence RevPAU at SGD195 for FY25 and SGD185 for FY26.
• Debt costs expected to remain attractive at 3.4% (FY25) and 3.5% (FY26).
• Upside potential from earlier corporate demand recovery, better RevPAR, and accretive deals. Downside risks include supply increases, global economic deterioration, and higher-than-expected interest rates.

ESG and Governance: Strong Foundations for Sustainable Growth

FEHT demonstrates robust ESG credentials and governance practices:

• Ranked 2nd out of 43 companies (2021) in the Singapore Governance and Transparency Index.
• Environmental targets include a 2% annual reduction in energy consumption and BCA Green Mark Gold status for all new developments.
• Four hotels achieved BCA Green Mark certification in 2020; Sentosa hotels are designed for Gold-level certification.
• Board independence is high, with no executive members and 4 out of 6 members independent.
• Revised management fees align with peers; remuneration for key management is consistently below 3.5% of distributable income.
• Payout ratio for taxable income consistently exceeds the 90% minimum for tax transparency.
• Gender diversity stands out, with women comprising five of eight permanent employees and half the board.

Risk Factors to Monitor

FEHT faces several risks that could impact future performance:

• Weaker-than-expected Chinese and corporate demand.
• Potential decline in residential rents.
• Rising interest rates affecting debt servicing costs.
• New supply from hospitality rivals.
• Dilutive transactions impacting unitholder returns.

Shareholder Structure and Market Performance

• Major shareholders include Golden Development Pte Ltd (22.3%), F.E. Holdings Pte Ltd (14.5%), and the Estate of Ng Teng Fong (7.4%).
• Market capitalisation stands at SGD1.2 billion (USD933 million) with 2,016 million issued shares.
• 52-week trading range: SGD0.66–0.51; current price: SGD0.60.
• Price performance: -4% absolute over 12 months, underperforming the Straits Times Index by 21%.

Historical Recommendations and Target Price Movements

• FEHT has seen a series of BUY recommendations with target prices in the SGD0.7–0.8 range prior to a HOLD at SGD0.5, now revised to HOLD at SGD0.60.

Conclusion: A Cautious Outlook with Long-Term Upside Potential

Far East Hospitality Trust continues to weather a challenging domestic hospitality market with strategic overseas diversification and strong capital management. While near-term distributions have declined, prudent cost control, accretive acquisitions, and a robust governance framework position FEHT for sustainable long-term growth. Investors should monitor evolving market conditions, especially in Singapore’s hospitality sector, and FEHT’s ability to execute on diversification and value-unlocking strategies.