Far East Hospitality Trust (SGX:Q5T) is a SGD$1.33B real estate investment trust (REIT), which is a collective vehicle for investing in real estate that originated in the US and has since been taken on board globally. Real estate analysts are forecasting for the entire industry, negative growth in the upcoming year , and an overall negative growth rate in the next couple of years. Unsuprisingly, this is below the growth rate of the Singapore stock market as a whole. Today, I’ll take you through the real estate sector outlook, as well as evaluate whether Far East Hospitality Trust is lagging or leading in the industry. See our latest analysis for Far East Hospitality Trust
What’s the catalyst for Far East Hospitality Trust’s sector growth?
Concerns surrounding rate increases and treasury yield movements have made investors dubious around investing in REIT stocks. This is because REITs tend to be dependent on debt funding. They are also considered as bond investment alternatives due to their high and stable dividend payments. In the past year, the industry delivered negative growth of -4.80%, underperforming the Singapore market growth of 7.92%. Far East Hospitality Trust leads the pack with its impressive earnings growth of over 100% last year. Furthermore, analysts are expecting this trend of above-industry growth to continue, with Far East Hospitality Trust poised to deliver a triple digit growth over the next couple of years.
Is Far East Hospitality Trust and the sector relatively cheap?
The REIT sector’s PE is currently hovering around 16x, in-line with the Singapore stock market PE of 14x. This illustrates a fairly valued sector relative to the rest of the market, indicating low mispricing opportunities. Furthermore, the industry returned a similar 7.02% on equities compared to the market’s 7.94%. On the stock-level, Far East Hospitality Trust is trading at a higher PE ratio of 40x, making it more expensive than the average REIT stock. In terms of returns, Far East Hospitality Trust generated 1.95% in the past year, which is 5% below the REIT sector.
What this means for you:
Are you a shareholder? Far East Hospitality Trust’s industry-beating future is a positive for shareholders, indicating they’ve backed a fast-growing horse. However, this higher growth prospect is also reflected in Far East Hospitality Trust’s high price, suggested by its higher PE ratio relative to its peers. If you’re bullish on the stock and well-diversified by industry, you may decide to hold onto Far East Hospitality Trust as part of your portfolio. However, if you’re relatively concentrated in REIT, the Far East Hospitality Trust’s high PE may signal the right time to sell.