Friday, April 13, 2018

Recent Action - Far East Hospitality Trust

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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17 comments:

  1. Replies
    1. Hi Sleepydevil

      You guess correctly yah :)

      Oh, why astonished?

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  2. Hi B,

    You should do a blogpost someday about your acronyms someday. Too many acronyms make my head spin.

    Is it OK to share how and where you do your market research about the hospitality industry and tourism trends ? Would like to learn more about it.

    ReplyDelete
    Replies
    1. Hi INTJ

      The tourism board is a good place to start they usually have up and coming news while colliers usually have info on the supply side of housing, hotels, offices and residentials.

      Delete
  3. Other than Oasia hotel, the properties that FEHT owns are not top quality ones imo. Like Changi Village Hotel for example. What are your thoughts on this?

    ReplyDelete
    Replies
    1. Hi Jalan Jalan

      Their hotels are indeed caters more to the middle market with more budget, even the sentosa project development they are building are catering to that market segment.

      A friend of mine actually just came back from changi village hotel and he liked it a lot :)

      For me ive never stayed before at these hotels ;)

      Delete
  4. Interestingly, my most recent investment was in another hospitality REIT, Ascendas Hospitality Trust. I felt the DPU is decent while gearing is not too high. If the AUD weakens, more tourists would head Down Under. If the AUD strengthens, the DPU in SGD terms would increase. Either way, it benefits the trust.

    ReplyDelete
    Replies
    1. Hi Vingaard

      That's a fair statement.

      Most of the assets there are freehold in nature too so I think it'll do fine over the years.

      Delete
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