UOB Kay Hian analyst Jonathan Koh has kept his “buy” call on Far East Hospitality Trust (FEHT) with a higher target price of 82 cents from 80 cents previously. Koh’s report dated Nov 4 comes after the trust’s 3QFY2024 ended Sept 30 results saw “healthy seasonal strength” driven by Chinese tourists.
During that quarter, FEHT benefitted from the return of Chinese tourists as its upscale and mid-tier hotels captured a bigger slice from the surge, the analyst notes.
The REIT’s hotels reported higher revenue per available rooms (RevPAR) of $154, 2.8% higher y-o-y and 10.8% higher q-o-q while their average daily rates (ADRs) rose by 4.2% y-o-y to $180.
“Chinese guests accounted for 20% of its hotel guests, which is double the contribution compared with pre-pandemic levels,” Koh adds. “Management expects demand from Chinese tourists to remain healthy due to the increase in number of flights and the mutual visa-free arrangement.”
In the 3QFY2024, FEHT’s serviced residences (SRs) saw a higher ADR of $278, 3.3% higher y-o-y, from more short-stay guests.
“Demand was predominantly derived from the services, banking & finance, electronics & manufacturing and oil & gas industries,” says Koh.
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FEHT also saw increased contributions from its commercial premises due to higher retail occupancies and rental rates.
To this end, Koh sees several positives for FEHT including the recovery in tourism supported by MICE (or meetings, incentives, conferences and exhibitions) events and increased flight connectivity.
“Major events lined up for 2H2024 include World Aquatics Swimming World Cup and World Chess Championship. Many global companies have set up their regional headquarters and Asian hubs in Singapore, which will lead to more corporate travellers staying at hotels in Singapore,” he says.
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Singapore’s tourism figures are also on track to meet the Singapore Tourism Board’s (STB) targets.
“STB expects international visitor arrivals to reach 15 million – 16 million in 2024 (2023: 13.6 million), bringing in tourism receipts of $26.0 billion - $27.5 billion (2023: $27.2 billion),” the analyst writes. “Visitor arrivals to Singapore increased 14.2% y-o-y to 4.4 million in 3Q2024, accounting for 88% of pre-pandemic levels. The average length of stay has increased to 3.6 days in 9MFY2024, compared with 3.4 days in 2019. Tourism receipts could hit the pre-pandemic high of $27.7 billion seen in 2019.”
FEHT also has the potential to grow via acquisitions.
“FEHT has debt headroom of $415 million based on aggregate leverage of 40% for acquisitions locally and overseas,” says Koh. “Locally, it could consider acquiring The Clan Hotel and Village Residence West Coast from its sponsor Far East Organisation (FEO). Other assets in the sponsor pipeline include the balance 70% stake in Village Hotel, Outpost Hotel and The Barracks on Sentosa.”
“FEHT is also scouting for opportunities to invest in limited-service, midscale and upscale hotels at gateway cities in developed markets overseas,” he adds.
In addition to his higher target price, Koh has also increased his FY2025 distribution per unit (DPU) forecast by 2% as the return of Chinese tourists has improved the visibility of continued growth in 2025.
As at 4.40pm, units in FEHT are trading 0.5 cents lower or 0.8% down at 62 cents.
