Should You Invest In Far East Hospitality Trust [Fundamental Analysis]

In this article, we'll be conducting a fundamental analysis of Far East Hospitality Trust and its suitability to achieve the following investment objective: To deliver a stable dividend yield of 5% to 6% per year while having high capital preservation ability.

Information Is Accurate Up To March 2024

Business Description

Far East Hospitality Trust is a hospitality REIT that was listed in 2012 and owns 12 hospitality properties across Singapore.

What I Like About Far East Hospitality:

100% of the properties are based in Singapore and their valuation has been very stable as compared to the overseas’ s hospitality properties (Figure 11)
The management has done an excellent job in their capital management and the REIT has an exceptionally healthy balance sheet (Figures 4 & 5)
A decent amount of the rental income from hotels and serviced residences is fixed which provides a good degree of rental income stability in a sector that is highly cyclical (Figure 10)

What I Do Not Like About Far East Hospitality:

Their sponsor, while notable, pales in comparison as compared to bigger players in terms of future property acquisition opportunities that will result in a limited ability for Far East Hospitality Trust to drive inorganic growth via yield accretive acquisition

Updates From Recent Performance (FY 2023)

General Comments:

DPS had climbed 25.1% to 4.09 cents, surpassing the DPIS in 2019 before the pandemic. However, much of the DPS is also supported by distribution from management fees paid in units and divestment gains that are to be disturbed over 3 years at around $8 million per year from 2022.

Positive Headwinds:

Further recovery in hotel occupancy rate is expected which should improve top and bottom-line performances at the current room capacity.
There is no refinancing requirement in 2024 of which interest rates are expected to decline to levels around what Far East Hospitality Trust is currently enjoying. As such, I believe the financing cost for Far East Hospitality Trust should remain stable or improve moving forward or at worst increase slightly moving in 2025.

Negative Headwinds:

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Daniel is a Licensed Independent Financial Consultant with MAS and a Certified Financial Planner (CFP®).

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