A Grossly Undervalued Property Play with 2.7% Yield Stagnating in my Portfolio

Glassworks, Liverpool John Moore Student Accommodation in UK owned by Far East Orchard


A property developer, hotel operator, student accommodation provider or medical centre owner?

Far East Orchard (O10.SI) has the attributes of all.

It is currently trading at $1.12 on SGX at 60% discount off its book value at $2.76.

It has 459,947,000 weighted average number of shares and S$226.5m of cash and equivalents, implying a net cash of $0.49. At $1.12, it is a steal as we are getting some hotels worth $1.54 for free for every share owned! 

I initiated a small investment in FEO in 2018 when it was an undervalued property developer yielding dividends at more than 5% then. I also liked the property assets owned by them, particularly Novena Medical Centre and purpose-built student accommodations in the UK. It was also giving shareholders scrip dividend option to collect dividends in the form of shares, which align with my long-term perspective of investment in income-producing assets. As this company stock has very thin volume or free float owned by the public. I was also hoping for its value to be unlocked through a future privatization but this would require immense patience and luck.

FEO's hospitality business was impacted by the pandemic over the past 2 years as it owns hotels in Singapore i.e. Orchard Rendezvous Hotel, Village Hotel Albert Court, in Malaysia i.e. Oasis Suites Kuala Lumpur, in Japan, Denmark, Germany and Australia i.e. Adina Apartment Hotel Adelaide Treasury, Rendezvous Hotel Perth Central and so on. 

It recorded a profit after income tax of S$16.8m in FY2021 compared to net loss of $8.9m in FY2020. Its revenue in FY2021 dropped 4.8% year-on-year to $106.8m compared to FY2020.

With the opening up of borders and recovery of tourism industry, I believe its hospitality business will recover soon and do well in the short-term future.

In tandem with its resilient business segment - student accommodation and medical centre, and pivoting away from building condominiums for its residential business, FEO should do better by becoming more defensive with recurring income streams in the future, positioning itself more as a Reit than a property developer or hotel operator.

I am happy with my investment in FEO and would continue holding it for the long-term, patiently waiting for its value to be unlocked while earning at least a 2.7% dividend yield which is higher than CPF OA interest rate. However, I would think twice about adding shares to increase investment as there are better income or growth investment opportunities out there in the stock markets.

Thanks for reading.

As always, stay safe and remain strong.

With love & peace, 

Qiongster