FAR East Hospitality Trust (FEHT) will make its first Japanese hotel acquisition after expanding its investment mandate to global markets and asset classes.
Its managers on Thursday (Feb 20) announced that the stapled security group had entered a sale and purchase agreement with an unrelated third party to acquire Four Points by Sheraton Nagoya, a freehold, 319-room hotel operated by Marriott International.
FEHT will buy the upscale property at an initial price of six billion yen (S$52.8 million). It is also acquiring a Japanese joint-stock company, which will be the master lessee of the asset, for around 50 million yen.
The deal is expected to be completed on Apr 25, 2025.
The initial price represents a 23 per cent discount to the hotel’s value of 7.79 billion yen as at Dec 31, 2024. It is also below the estimated replacement cost of 8.61 billion yen, which includes land value, reconstruction expenses for a new hotel of a similar standard, and incidental costs.
If the acquired property achieves certain targets, FEHT will make additional payments of up to 1.75 billion yen in April or May of the years 2026 to 2028.
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The trust’s managers said that the acquisition will be funded through yen-denominated debt facilities. After additional borrowings for the deal, FEHT’s gearing is expected to be around 32.9 per cent.
Assuming that the property’s net operating income has stabilised and that the additional payments are made, the acquisition is expected to be 1.7 per cent accretive to FEHT’s distribution per stapled security. This is on the basis that the hotel was acquired on Jan 1, 2024, and leased out and operated until Dec 31, 2024, inclusive.
The trust’s managers noted that the hotel is within walking distance of the Chubu Centrair International Airport, and is close to Aichi Sky Expo, Japan’s fourth-largest exhibition centre.
They said: “Nagoya is the key gateway to Central Japan, which has vast potential for tourism, and where travellers can access interesting destinations such as Nagano, Toyama, Kanazawa and Kyoto.”
They added that the property is still ramping up operations since Japan reopened its borders in October 2022. Last year, international visitor numbers at Nagoya’s international airport hit only 68 per cent of pre-pandemic levels.
Gerald Lee, chief executive of FEHT’s managers, said: “Japan is an attractive destination for investments as hotels can be acquired at yields that are well above the borrowing costs.”
While the acquisition represents “an exciting new growth opportunity”, Singapore remains the trust’s core market and foundation for its long-term strategy, he added.
Expanded investment mandate
In a separate filing on Thursday, the managers of the stapled security group – which comprises Far East Hospitality Real Estate Investment Trust and Far East Hospitality Business Trust – said they would broaden the investment strategies of their respective trusts.
With the flexibility to explore new markets and asset classes, they will widen their pool of investment targets, they said. This could “bring opportunities to optimise the yield and value” of FEHT’s portfolio.
They added that including global assets and adjacent lodging asset classes in the investment scope will diversify the trust’s portfolio and revenue streams. This will mitigate risks arising from market fluctuations and the economic cycles of a single region or sector, they said.
Lastly, the managers believe that the expanded mandate will grant FEHT access to a wider range of reputable hospitality operators, which is complementary to its existing portfolio and master lease agreements.
Still, the managers said that they will continue to maintain a “strong core in Singapore”, even as they broaden their focus to invest overseas.
Stapled securities of FEHT closed at S$0.565 on Thursday, down 0.9 per cent or S$0.005, before the news.
