Far East Orchard crosses S$3 billion AUM target with stake buys in business trust managers

[SINGAPORE] Far East Orchard is acquiring an additional 42 per cent stake in the managers of Far East Hospitality Trust (FEHT) , a transaction that will take its core assets under management (AUM) to S$3.9 billion upon completion, surpassing its S$3 billion FY2030 target four years early.

Far East Orchard announced on Monday (Oct 5) morning that the S$28.3 million deal will raise its ownership in the managers from its current 33 per cent to 75 per cent. The remaining 25 per cent will continue to be held by the seller, FEO Asset Management, a wholly owned subsidiary of Far East Organization Centre.

The acquisition involves shares in both FEO Hospitality Asset Management, the manager of Far East Hospitality Real Estate Investment Trust (FEH-Reit), and FEO Hospitality Trust Management, the trustee-manager of Far East Hospitality Business Trust (FEH-BT).

FEHT is a hospitality stapled group with a market capitalisation of S$1.25 billion. It comprises FEH-Reit and FEH-BT and holds a portfolio of 13 properties, comprising 12 properties in Singapore and one hotel in Japan.

While FEHT’s primary focus remains Singapore, its investment mandate allows it to invest globally in income-producing properties used for hospitality and other accommodation or lodging purposes. These include hotels, serviced residences, student accommodations, apartments and rental housing.

Far East Orchard said in its statement that the deal with its associates is a strategic move to accelerate its “FEOR30” business road map.

By gaining effective control of the FEHT managers, Far East Orchard’s core AUM will scale by about 86 per cent, jumping from S$2.1 billion to S$3.9 billion.

This exceeds the company’s previously announced core AUM target of S$3 billion, and supports a new core AUM target of “at least S$5 billion” by FY2030, Far East Orchard said.

At a media briefing on Monday, Far East Orchard’s chief financial officer Joanna Gok said that the next S$1.1 billion would come from new funds, new acquisitions and growth at FEHT.

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“For us, AUM growth is not an end in itself. The focus is on building AUM that generates sustainable recurring earnings, strengthens our operating platform and enhances capital returns,” she said.

Assuming the acquisition had been completed on Jan 1, 2025, Far East Orchard’s FY2025 earnings per share would have risen 3.7 per cent to S$0.1143 from S$0.1102. Net profit would have increased to S$56 million from S$54 million. On a pro forma basis, return on equity would also improve to 4.1 per cent, noted Gok.

Far East Orchard will also receive distribution income from FEHT stapled securities through a dividend in specie, adding to the group’s recurring earnings base and supporting dividend growth over time, she added.

As part of the transaction’s conditions, FEO Hospitality Asset Management will distribute roughly 165.2 million FEHT stapled securities to its shareholders.

Far East Orchard will receive about 54.5 million of these securities, giving it a direct interest of around 2.65 per cent in FEHT. The company said that the dividend in specie would also reduce the cash outlay and associated costs of the acquisition.

The S$28.3 million consideration will be paid entirely in cash, funded by Far East Orchard’s internal resources. The acquisition is expected to be completed by the end of 2026.

Capital recycling

The acquisition also opens another route for Far East Orchard to recycle capital from its lodging portfolio, with FEHT potentially serving as a listed vehicle for stabilised, income-producing assets.

Far East Orchard currently has 12 hospitality properties and 18 purpose-built student accommodation (PBSA) properties. Its hospitality properties span Australia, Germany, Denmark, Japan and Malaysia, and its PBSA portfolio is in the UK.

Group CEO Alan Tang said that the company has made a preliminary assessment of assets that could potentially be suitable for FEHT, although it is not yet ready to identify them.

He stressed that any transaction would have to make sense for both Far East Orchard shareholders and the trust’s stapled securityholders.

Asked whether Far East Orchard’s PBSA assets could eventually be recycled into FEHT, Tang said that there was “no certainty” over whether potential assets would be hospitality or PBSA properties, or whether they would be located in Singapore, the UK or elsewhere.

Listed versus private funds

Far East Orchard also sees FEHT and its private fund platform serving different types of opportunities.

“For FEHT, I suppose it would be more typical to consider assets that are stabilised, income-producing and suitable for the listed Reit platform,” Tang said.

Private funds, meanwhile, would typically take on opportunities with a greater value-add component, depending on their mandates, targeted returns and investors’ risk appetite, he added.

He noted that Far East Orchard could also keep strategic assets on its own balance sheet while developing, repositioning or enhancing them, before deciding whether they are suitable for a private fund or the listed platform.

Separately, Tang said Far East Orchard would continue working on divesting non-core assets identified under FEOR30.

The group previously identified non-core assets including two medical suites in Novena; commercial development Woods Square in Woodlands; the Singapore Business Federation Center, a 31-storey commercial building in Robinson Road in the Central Business District with 48 medical suites and 199 office units; and the freehold land on which its Orchard Rendezvous Hotel sits along prime Tanglin Road.

Shares of Far East Orchard ended Monday up 0.9 per cent or S$0.01 at S$1.07, and stapled securities of FEHT closed 2 per cent or S$0.01 higher at S$0.52.