Far East Hospitality Trust - CGS-CIMB Research 2021-04-30: Delivering A Stable Performance


Far East Hospitality Trust - Delivering A Stable Performance

  • Far East Hospitality Trust's 1QFY21 distributable income (-1% y-o-y) was in line with our forecast.
  • We expect a stable performance in FY21F, supported by master lease income and lower finance costs.
  • Reiterate ADD. We continue to like Far East Hospitality Trust's resilient income, backed by master leases.

Far East Hospitality Trust's master lease income and lower operating expenses supported 1Q

  • Far East Hospitality Trust (SGX:Q5T)’s 1QFY21 distributable income of S$12.5m (-1% y-o-y) was in line at 25% of our full-year forecast. 1QFY21 revenue declined by 7% to S$21.3m, while NPI dropped 8% y-o-y to S$18.2m. This was offset by lower finance expenses and REIT manager’s fees, leading to a relatively flat y-o-y distributable income.
  • The y-o-y decline in revenue was mainly due to the weaker performance from serviced residence on lower variable income (-14% y-o-y) and commercial segment (-21% y-o-y). Hotel’s revenue was flat in 1QFY21 y-o-y, supported by master lease income.

Hotel occupancy up but ADR down y-o-y due to alternative business

  • Far East Hospitality Trust's Hotel RevPAR declined ~46% y-o-y to S$51 due to lower ADR (-54% y-o-y) which offset the higher occupancy (+10.8% points y-o-y) as most hotels were under government contracts and foreign workers demand that command lower rates.
  • On a q-o-q basis, RevPAR declined by ~14%, based on our estimates, due to weaker occupancy and ADR amid weaker staycation and foreign workers demand as they opt for cheaper and more suitable accommodation.
  • We understand that Far East Hospitality Trust's hotels which were not on government contracts had about a 50% occupancy rate in 1QFY21, vs portfolio occupancy rate of 76%.

Serviced residence occupancy and ADR declined y-o-y

  • Far East Hospitality Trust's serviced residence’s RevPAU declined 21% y-o-y, dragged down by both occupancy rate and ADR due to dwindling demand from long-stay guests and foreign workers, as well as lower contributions from leisure guests.
  • On a q-o-q basis, while ADR increased, occupancy rate declined, leading to a weaker RevPAU of ~5% on tapering demand from long-stay guests and foreign workers.

Master lease income and lower debt costs to support performance

  • Far East Hospitality Trust's hotel segment is expected to be largely supported by government contracts and master lease income in FY21F. As for serviced residence, hitting just the fixed rent level is a possibility should borders remain closed for another quarter.
  • An outline advice has been issued by URA for a potential redevelopment of Central Square. Should there be a divestment, paring down debt and returning some proceeds to unitholders will be Far East Hospitality Trust’s focus.
  • Far East Hospitality Trust's gearing was at 41.6% as at 1QFY21.

Reiterate ADD with an unchanged DDM-based Target price of S$0.745

EING Kar Mei CFA CGS-CIMB Research | LOCK Mun Yee CGS-CIMB Research | https://www.cgs-cimb.com 2021-04-30
SGX Stock Analyst Report ADD MAINTAIN ADD 0.745 SAME 0.745