Far East Hospitality Trust - CGS-CIMB Research 2020-07-30: Backed By Master Lease Income


Far East Hospitality Trust - Backed By Master Lease Income

  • Far East Hospitality Trust's 1HFY20 DPU of 1.03 Scts (-43% y-o-y) was in line with our FY20F forecast.
  • Hotel segment supported by master lease income; serviced residence continued to receive variable income due to long stay guests.
  • Reiterate ADD. The stock is trading at 0.6x P/BV; COVID-19 impact priced in.

Far East Hospitality Trust's 1HFY20 DPU came in within expectations

  • Far East Hospitality Trust (SGX:Q5T)’s 1HFY20 DPU of 1.03 Scts (-43% y-o-y) was in line with our expectations at 41% of our FY20F.
  • Far East Hospitality Trust's 1HFY20 revenue declined 21% y-o-y while NPI fell 23% y-o-y. Hotel segment (64.4% of 1HFY20 revenue) which experienced a y-o-y decline of 25.6% y-o-y was the hardest hit by COVID-19. This was followed by the commercial segment (-12.7% y-o-y; 21.6% of 1HFY20 revenue) and serviced residence (-3.7% y-o-y; 14% of 1HFY20 revenue).
  • Far East Hospitality Trust retained S$5.3m in 1HFY20 for potential rental waivers mainly for retail tenants and the slowdown in the serviced residence business. Dividend payout was ~79% in 1HFY20. If unutilised, the REIT sees no reason to continue to retain income.

Hotel segment supported by alternative businesses

  • Hotel’s 1HFY20 RevPAR fell 43% y-o-y (occupancy -11% y-o-y to 78%; average daily rate (ADR) -35% y-o-y to S$102) to S$79. We estimate hotel occupancy rose from 65% to ~90% in 2QFY20 as Far East Hospitality Trust received alternative businesses from Malaysian workers and stay-home-notice personnel.
  • ADR was, however, much lower which resulted in a lower RevPAR q-o-q in 2QFY20. Hotels should continue to receive alternative businesses over the next two months and the demand from staycation to a smaller extent. We believe the hotel segment will continue to be supported by master lease income in 2H20F.

Serviced residence performed relatively well

  • Serviced residence (SR) performed well in 1HFY20. Despite COVID-19, this segment managed to achieve variable rent, thanks to the long leases from corporates. Far East Hospitality Trust's 1HFY20 RevPAU declined 4.7% y-o-y to S$166 as lower average daily rate (-6.6% y-o-y to S$200) offset the higher occupancy (+1.7% pts y-o-y to 82.7%).
  • While we estimate that occupancy remained relatively stable in 2Q vs. 1Q, the rates were lower q-o-q as Far East Hospitality Trust secured longer-term business which usually commands lower rates. We understand that the demand came from stay extensions, a switch from hotel to SR as well as housing of Malaysian workers. While we note that > 50% of its guests are on long-term basis ( > 1 month), a prolonged border closure may eventually affect the occupancy of SRs.
  • As for its commercial segment, retail business which formed 2/3 of its commercial segment income saw higher vacancy and higher turnover based component in the rental structure.

Reiterate ADD at an unchanged DDM-based Target Price of S$ 0.592

EING Kar Mei CFA CGS-CIMB Research | LOCK Mun Yee CGS-CIMB Research | https://www.cgs-cimb.com 2020-07-30
SGX Stock Analyst Report ADD MAINTAIN ADD 0.592 SAME 0.592