With the exception of a newly-acquired hotel in Nagoya, FEHT's portfolio consists entirely of Singapore-based hotels, accounting for more than 95% by portfolio value.
"FEHT's portfolio leverage on the recovering Singapore tourism sector, which is still below pre-COVID levels in terms of tourism recovery and a return of corporate MICE travellers to Singapore," says Wong.
She points out that FEHT's income has a high fixed income component from sponsor-held master leases, which ensures income stability to the REIT.
As some icing, the Nagoya acquisition should also see first-year contributions in the current FY2026, adding to DPU growth.
What makes FEHT also interesting is its "hidden value" in its land beneath the portfolio of hotels.
According to Wong, FEHT's Singapore assets are valued at below replacement costs at $700,000 to $800,000 per key, against market transactions at around $1.2 million.
Valuation for its land is even cheaper at below $1,000k sqft per plot ratio on a fresh 99-year lease, which makes for attractive entry prices for redevelopment.
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Specifically, Wong says FEHT may divest the Village Hotel Albert Court and Village Robertson Quay, with potential to unlock around 60% premium to valuations with an estimated potential gain of 6.5 cents per share.
Proceeds from divestment could be recycled to higher income-producing assets, or potentially shared with investors via capital gain distributions, she suggests.
"Alternatively, these old assets could be ‘currency’ for an asset swap for sponsor's ROFR assets, including The Clan Hotel, with yield accretion to the portfolio," says Wong, referring to the newly-built hotel along Cross Street under Far East Hospitality, in turn a 70-30 joint venture between Far East Orchard and Straits Trading.
"We like FEHT's for its stable income profile with acquisition opportunities, that will be naturally accretive to DPUs at its current cost of capital," says Wong.
"Our evaluation of implied land cost shows that its current book valuation is easily realisable, if not understated."
Wong's revised target price of 75 cents implies a narrower 15% discount to book.
FEHT units closed at 56 cents on March 16, up 0.89% for the day and down 0.88% in the past year.
