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Author:   |   Latest post: Sun, 16 Sep 2018, 07:16 PM


Recent Action - Far East Hospitality Trust

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With the proceeds from the divestment from Comfortdelgro which I blogged earlier, I had also purchased 125,000 shares of Far East Hospitality Trust (FEHT) at a price of 68 cents.

This is a company that I once used to own, then divested, then move the funds around, and now back again to the same company. 

I am looking for something with a decent yield, predictable near term both organic and inorganic growth outlook and preferably a Reit, so I thought this company fits the bill for now. I am also bullish on the sectors as I think the Revpar has seen a bottoming in FY17 and looks good to grow over the next few years.

1.) Inorganic Acquisition of the Oasia Hotel Downtown

FEHT made an acquisition from its sponsor on the Oasia Hotel Downtown which was only completed last year for a fee of $220.1m.

The premise is a 314 room upscale hotel located in the Tanjong Pagar area near my office.

The acquisition is funded via debt which means this will automatically be yield accretive, raising NPI pro-forma by 4% higher. Upon completion of the acquisition, gearing has increased to 37.5%.

Revpar for the hotel is currently at SGD170, and the premise will be under Master lease structure for the next 20 years.

2.) Supply of new hotels decreasing

Hotel supply in the past 5 years have increased at a CAGR of 4.9% and has increased faster than the rate of tourism arrival.

By theory of economics, we knew supply > demand means the ADR and Revpar would go down.

In 2018, this increase in supply is expected to slow down to 750 additional rooms, which translates into only 1.1% increase.

There will obviously continue to be pressure, but should demand surge higher than that, we should see a rebound in the hotel and service apartment segment.

3.) Village Hotel, The Outpost Hotel and The Barracks Hotel at Sentosa

This is a joint venture with its sponsor which FEHT owns 30% stake at the moment worth $133m.

This 839 room mega project will be completed in 2019, and will cater to the middle market of people who is looking to stay at the Sentosa area. I find this quite interesting project.

It's still early days but at 4% NPI this should bring in about $6m worth to distributional income every year.

Final Thoughts

ADR and Revpar for the hotel segments dropped marginally to $155 and $136 respectively in FY17 and I believe we will see a rebound in this segment starting FY18.

ADR and Revpar for the service apartment are more affected as it dropped to $219 and $175 respectively in FY17. I think this has probably more room to fall as longer stay tenants number are not strong and doesn't seem to rebound yet.

Current yield is at 5.8% for FY17 based on 3.9 cents, and am expecting a 4% increase through inorganic growth of Oasis acquisition, as well as another 4% increase in rebound of Revpar for the hotels segment. Hence, I would be expecting a net yield of 5.8% x 1.04 x 1.04 = 6.2% yield for FY18, which is still fairly decent. We should see better numbers for hospitality stocks though.

Thanks for reading.

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