Far East Hospitality Trust - Maybank Kim Eng 2020-11-01: Transient Support


Far East Hospitality Trust - Transient Support

Master lease cushion, undemanding valuations

  • Far East Hospitality Trust (SGX:Q5T)’s Singapore-focused operations in 3Q20 continued to be bolstered by transient demand originating from travel and border restrictions, with occupancies for its hotels and serviced residences high at 87-97%.
  • RevPARs/ RevPAUs were weak but declined less than its peers, with 9M20 distributable income down 31.9% y-o-y to 72% of our full-year estimates.
  • The high proportion of minimum fixed rent from its master lease offers downside support to Far East Hospitality Trust amid a slow recovery in 2021. We have maintained forecasts and DDM-based S$0.60 Target Price (COE: 7.8%, LTG: 2.0%).
  • Far East Hospitality Trust's valuation is undemanding at 0.6x FY20E P/B. Maintain BUY.

Far East Hospitality Trust's hotel supported by fixed rent, recovery slow

  • Far East Hospitality Trust's hotel revenue, cushioned by fixed rent from its master lease rental, fell 33.8% y-o-y and 0.1% q-o-q and contributed 69.1% of gross revenue in 3Q20 and 65.9% for 9M20. Occupancy improved y-o-y to 97.3% (from 92.3%), supported by contracts from government agencies as dedicated facilities for isolation purposes, as well as accommodation for Malaysian workers affected by border closures.
  • Despite a pick-up in occupancy from 77.6% in 1H20 to 84.2% in 9M20, RevPAR fell 55.8% y-o-y to S$67 in 3Q20 on the back of a 58.1% y-o-y decline in ADR.
  • Staycation demand at the Barracks (40 rooms) and Oasia Downtown (314) could gain traction from 4Q20.

Far East Hospitality Trust's serviced residences backed by long-stays, set to ease off

  • Far East Hospitality Trust's serviced residences revenue fell 22.7% y-o-y but rose 3.1% q-o-q and performed above its fixed rent, supported by long-stay corporate demand. Occupancy dipped y-o-y to 87.1% (from 88.2%), but was stable at 84.2% for 9M20. RevPAU declined 20.1% y-o-y to S$157 in 3Q20 and 10.3% y-o-y for 9M20 as ADR fell 19.0% and 11.1%, with a cut-back in shorter-term stay bookings.
  • We expect a weaker 2H, as gains from the earlier growth at higher rates that contributed 18.6% of its serviced residence demand, will continue to ease off.

AEI brought forward

Chua Su Tye Maybank Kim Eng Research | https://www.maybank-ke.com.sg/ 2020-11-01
SGX Stock Analyst Report BUY MAINTAIN BUY 0.600 SAME 0.600