CGS International
August 4, 2025

Far East Hospitality Trust: Navigating a Softer Hospitality Market with Resilience and Strategic Moves

Introduction: Resilience Amidst Hospitality Sector Cooldown

Far East Hospitality Trust (FEHT) remains a notable player in Singapore’s REIT landscape, demonstrating resilience in a cooling hospitality sector. In the first half of 2025, FEHT’s mid-tier hotels outperformed peers, supported by agile management strategies and ongoing asset recycling initiatives. Despite sector challenges, the trust maintains a positive outlook bolstered by prudent financial management, strategic acquisitions, and a solid dividend yield.

Key Highlights and Financial Performance

• 1H25 DPU: 1.78 Singapore cents, forming 46% of the FY25F forecast of 3.84 Scts, including a S\$5.4m top-up from divestment gains.
• Revenue/NPI: 1H25 revenue and net property income (NPI) achieved 46% and 45% of full-year projections, respectively.
• Interest Savings: S\$2.4m year-on-year reduction in finance expenses, with average cost of debt dropping by 70 basis points year-to-date.
• Dividend Yield: Projected FY25F yield of 6.3%, with a target price of S\$0.74 and current price at S\$0.595, offering a 24.4% upside.

Strategic Distribution and Capital Management

FEHT’s strategies for maximizing investor returns are evident in its distribution approach:

• Central Square Divestment: S\$18m gain realized in 1H25, with S\$5.4m distributed and another S\$2.5m scheduled for 2H25.
• Oasia Hotel Downtown Acquisition: Earn-out stapled securities to be issued on August 20, 2025. An advance distribution of approximately 0.47 Scts per stapled security will be declared for the period from July 1 to August 19, 2025, prior to the issuance.
• Forecast Adjustments: FY25/FY26F/FY27F DPU estimates adjusted by -2.1%/-0.4%/+3.4%, reflecting a slower hospitality sector, lower finance expenses, and new unit issuances.

Mid-Tier Hotels: The Bright Spot in a Weaker Sector

The Singapore hospitality market saw headwinds in 1H25:

• SG Hotels RevPAR: Fell 5.7% year-on-year to S\$133, primarily due to a 4.5% lower average daily rate (ADR).
• Serviced Residences: RevPAR declined 6.5% year-on-year to S\$211, with a 6.9% point drop in occupancy, despite a quarter-on-quarter recovery in 2Q25 as renovation works concluded.
• Mid-Tier Strength: FEHT’s mid-tier properties outperformed as budget-conscious travelers favored affordable options. The Village Hotel Changi secured a significant group contract, which is expected to improve occupancy in the second half of 2025.

Management noted ongoing tariff negotiations, delaying some corporate bookings. Tactical rate reductions in 2Q25 helped to maintain occupancy.

Growth Strategy: Acquisitions and Capital Recycling

FEHT is actively pursuing growth through both acquisitions and capital recycling:

• Four Points by Sheraton Nagoya: Acquired in April 2025 and contributed to 1H25 revenue.
• Acquisition Pipeline: Management is open to further acquisitions in Japan and from its sponsor’s Singapore pipeline, focusing on smaller-ticket assets.
• Capital Recycling: FEHT plans to fund acquisitions via divestment of mature assets. Gearing increased to 32.8% at end-June 2025, up from 31.2% in March 2025.

Financial Summary Table

Detailed 1H25 Results Review

• Revenue: S\$51.6m, down 4.2% year-on-year and 6.1% half-on-half. Constitutes 46% of the full-year forecast.
• Net Property Income: S\$45.6m, a 7.7% decline year-on-year, at 45% of the 2025 projection.
• Finance Cost: S\$12.8m, representing a 15.8% year-on-year reduction.
• DPS: 1.78 cents, 9.2% lower year-on-year and 14.4% down half-on-half, but aligned with expectations after factoring in divestment top-ups.

Balance Sheet Strength and Liquidity

• Total Investments: Projected to rise from S\$2.511b in 2023 to S\$2.596b by 2027.
• Cash & Equivalents: Expected to remain stable, with S\$37m forecast for 2027.
• Gearing: Rose to 32.8% as of June 2025, still within sector comfort levels.
• Key Ratios: Gross interest cover improves from 2.89x (2024) to 4.15x (2027F), while net property income margin remains strong above 90%.
• Dividend Payout Ratio: Remains above 100% from 2025 onward, ensuring robust investor returns.

ESG Performance and Sustainability Initiatives

FEHT’s ESG profile is a work in progress, with significant focus on improvement:

• Combined ESG Score: B- (2023), with strengths in Social and Governance pillars, but Environmental scores lag due to emissions and environmental innovation.
• Certifications: Five out of twelve properties are Green Mark certified by Singapore’s BCA; new Sentosa hotels aim for Gold certification.
• Energy & Emissions: FY23 saw energy, carbon, and water use rise due to higher room utilization post-government contracts, yet energy intensity and carbon emissions per occupied room improved by 1.2% and 1.7% respectively.
• Strategic Targets: Net-zero emissions by 2050F; ongoing annual energy intensity reduction target of 2% per occupied room.
• Disclosure Gaps: FEHT is encouraged to enhance its ESG disclosures to keep pace with sector leaders, which could positively impact investor sentiment and valuation.

Shareholder Structure and Trading Metrics

• Major Shareholders: Golden Development Pte Ltd (22.0%), Golden Landmark Pte Ltd (10.5%), Far East Organization Centre Pte Ltd (9.8%).
• Market Cap: S\$1,204m (US\$933.9m).
• Shares Outstanding: 1,904m, with a free float of 44.6%.
• Trading Volume: Average daily turnover of S\$0.66m.

Peer Comparison and Market Outlook

FEHT is benchmarked against other S-REITs, with its mid-tier hotel focus and prudent leverage standing out in the current market. Key catalysts for re-rating include:

• Stronger-than-expected tourist arrivals
• Accretive acquisitions and successful asset recycling
• Risks include global travel slowdown and unexpected interest rate increases

ESG and Sustainability: A Path Forward

FEHT has prioritized environmental and social responsibility, aiming for net-zero emissions by 2050. Ongoing progress in sustainability certifications and energy efficiency is expected to support long-term asset values and appeal to ESG-focused investors. Improvement in disclosures and implementation pace will be key for further ESG score enhancements.

Conclusion: Investment Case and Analyst Rating

CGS International reiterates an “Add” rating for FEHT, with a stable target price of S\$0.74 and a forecast dividend yield of 6.3% in FY25. Despite near-term sector softness, the trust’s active asset management, resilient mid-tier hotel positioning, and ongoing capital recycling support its medium-term growth and income outlook. Investors looking for yield, defensive characteristics, and exposure to Singapore’s hospitality recovery should keep FEHT on their radar.

Stock Recommendation Framework

• Add: Total return expected to exceed 10% over the next 12 months.
• Hold: Expected return between 0% and 10%.
• Reduce: Total return expected to fall below 0%.

FEHT stands out for its disciplined management, resilience in a challenging sector, and attractive yield, making it a compelling proposition for income-focused investors and those seeking exposure to Singapore’s hospitality real estate market.