FAR East Hospitality Trust Makes First Japanese Hotel Acquisition
FAR East Hospitality Trust (FEHT) will make its first Japanese hotel acquisition after expanding its investment mandate to global markets and asset classes.
Hotel Acquisition
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. The trust 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.
Financial Details
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.
Funding
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.
Accretive
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.
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, which could "bring opportunities to optimise the yield and value" of FEHT’s portfolio.
Conclusion
The acquisition of Four Points by Sheraton Nagoya marks an exciting new growth opportunity for FEHT, which is expected to be 1.7 per cent accretive to the trust’s distribution per stapled security. The expanded investment mandate will also provide FEHT with the flexibility to explore new markets and asset classes, diversifying its portfolio and revenue streams.
FAQs
Q: What is the initial price of the hotel acquisition?
A: The initial price is six billion yen (S$52.8 million).
Q: What is the estimated replacement cost of the hotel?
A: The estimated replacement cost is 8.61 billion yen, which includes land value, reconstruction expenses for a new hotel of a similar standard, and incidental costs.
Q: When is the expected completion date of the deal?
A: The deal is expected to be completed on Apr 25, 2025.
Q: How will the acquisition be funded?
A: The acquisition will be funded through yen-denominated debt facilities.
