FAR EAST HOSPITALITY TRUST (SGX:Q5T)
Far East Hospitality Trust - Some Green Shoots Of Recovery
- Far East Hospitality Trust's RevPAR/PAU extended declines in 3Q.
- Isolation and MCO business likely to taper-off in 4Q.
- Downside protection from fixed rent structure.
Hotels remained at fixed rent while Serviced Residences were above fixed rent
- Far East Hospitality Trust (SGX:Q5T)’s released a 3Q20 business update. 3Q20 gross revenue declined 33.2% y-o-y to S$20.6m while NPI fell 36.4% y-o-y to S$17.9m, dragged by lower master lease rental for hotels and Serviced Residences (SRs), as well as weaker performance from commercial premises. On a segmental basis, hotels saw fixed rent for its master leases while the Serviced Residences segment remained above the fixed rent.
Hotels RevPAR fell 55.8% in 3Q
- In terms of RevPAR, hotels RevPAR fell 55.8% y-o-y from S$152 to S$67 in 3Q, on the back of 58.1% y-o-y decrease in ADR and a 5ppt increase in occupancy. Occupancy rate continued to be supported by government contracts and booking from local companies to accommodate their Malaysian workers in Singapore due to the Malaysian Control Order (MCO) (at much lower ADR).
- We understand that Far East Hospitality Trust needs to receive at least S$110 RevPAR/RePAU for hotels/Serviced Residences to receive variable income.
Serviced Residences RevPAU fell 4.7% y-o-y helped by Serviced Residences’ long-stay leases from corporate business
- Serviced Residences RevPAU declined 20.1% y-o-y from S$196 to S$157, on the back of 19.0% y-o-y decline in ADR to S$180 and a 1.1ppt decrease in occupancy to 87.1%. Overall, Serviced Residences continued to perform better than hotels, helped by Serviced Residences’ long-stay leases from corporate business.
- We understand from management that more than 50% of Far East Hospitality Trust’s properties are still on contracts with the government but these contracts could be terminated after 21 days of notice from the government. As the infection rate in Singapore comes down, we expect the demand from the “isolation business” and MCO to taper off in 4Q.
- While Far East Hospitality Trust is tapping on opportunities relating to staycation, we believe that competition is intense and the staycation business is unlikely to compensate for the income shortfall from international tourists.
- We reduce our COE assumption from 8.4% to 8.1% given the more stabilised COVID-19 situation in Singapore and further easing in travel restrictions. We also revise our Far East Hospitality Trust's DPU forecasts for FY22-24 by 13-14% as we expect a more robust recovery from FY22 given the expectation that a vaccine will be widely available by mid-2021. After adjustments, our fair value estimate increases from S$0.51 to S$0.58.
- See Far East Hospitality Trust Share Price; Far East Hospitality Trust Target Price; Far East Hospitality Trust Analyst Reports; Far East Hospitality Trust Dividend History; Far East Hospitality Trust Announcements; Far East Hospitality Trust Latest News.
Chu Peng
OCBC Investment Research
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https://www.iocbc.com/
2020-11-03
SGX Stock
Analyst Report
0.58
UP
0.520
