Far East Hospitality Trust (FEHT) announced on Feb 20 that it is expanding its investing mandate to include overseas properties although the REIT’s primary focus will remain in Singapore. The REIT will also expand its mandate to include adjacent lodging properties.
To this end, FEHT announced in a separate filing that it is acquiring the Four Points by Sheraton Nagoya, to ride the growing popularity of Japan as a travel destination.
FEHT will pay 6 billion yen, or $53.5 million, which is at 23% discount off valuation, and also another $0.4 million for the operating company for this 319-room hotel.
Subject to the operational performance of the hotel achieving certain defined targets, an additional payment of up to 1.75 billion yen may be paid to the vendor in April or May of the calendar year from 2026 to 2028.
Assuming the net operating income of the property has stabilised and, consequently, the 1.75 billion yen is payable, FEHT says this acquisition will be 1.7% accretive to the distribution per stapled security on a pro forma basis, assuming that the acquisition was completed on Jan 1, 2024 and the property had been leased through to Dec 31, 2024.
FEHT plans to fund the acquisition through yen-denominated debt facilities, which serve as a natural hedge against currency fluctuations.
Despite the additional borrowing, gearing is expected to remain low at approximately 32.9% and FEHT says it will maintain ample debt headroom, providing sufficient financial flexibility for other yield-accretive opportunities.
Gerald Lee, CEO of the manager, calls this acquisition "a strategic milestone".
"Japan’s stable economic environment, robust tourism growth, increasing visitor spending, and strong government support for decentralising inbound travel make it an attractive market for expansion. In addition, Japan is an attractive destination for investments as hotels can be acquired at yields that are well above the borrowing costs."
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Nonetheless, Lee says that Singapore remains FEHT's core. "We remain committed to strengthening our existing portfolio and will continue to uphold our disciplined approach to prudent capital management, ensuring sustainable value creation for our stapled securityholders," he says.
As at Dec 31, 2024, all of the REIT’s properties are in Singapore and across three segments: hotels, serviced residences and commercial properties.
According to FEHT, its principle strategy is to “invest in Singapore and globally, in long-term investments, directly or indirectly, in a diversified portfolio of income-producing real estate, used primarily for hospitality, hospitality-related and other accommodation and/or lodging purposes (including without limitations, hotels, motels, resorts, serviced residences, student accommodations, apartments and other lodging facilities or properties used for rental housing), whether wholly or partially, as well as real estate-related assets” among others.
The move is said to give the managers more flexibility to explore new geographical markets and asset classes. It will also allow the REIT’s portfolio to be more diversified and provide an enhanced return potential, the managers add in FEHT’s Feb 20 filing.
FEHT reported a distribution per stapled security (DPS) of 4.04 cents in FY2024, 1.2% lower y-o-y.
Units in FEHT are trading 0.5 cents lower, or 0.88% down, at 56.5 cents on Feb 20.
