FAR EAST HOSPITALITY TRUST (SGX:Q5T)
Far East Hospitality Trust - A Slow Start
Far East Hospitality Trust reported Soft 1Q21 numbers
- Far East Hospitality Trust (SGX:Q5T)’s 1Q21 revenue and NPI fell 6.9% y-o-y and 8.4% y-o-y respectively due to lower RevPAR and RevPAU for its Singapore hotels and serviced residences (SRs) portfolio. Its operations remain cushioned by isolation demand, likely to be extended into 3Q21.
- Far East Hospitality Trust remains our preferred play into a (slow) sector recovery, with the high proportion of minimum fixed rent from its master lease offering downside support amid soft RevPAR growth in 2021.
- Our DPU forecasts for Far East Hospitality Trust are unchanged. Its valuation is undemanding at 0.8x P/B, and it offers 15% upside to our S$0.70 DDM-based target price (COE: 5.4%, LTG: 2.0%).
Hotels revenue up q-o-q in 1Q21, still backed by fixed rent
- Far East Hospitality Trust's hotel revenue was flat y-o-y but jumped 22% q-o-q to ~67% of revenue in 1Q21, supported by fixed rent from its master leases.
- Occupancy fell from 85.1% in FY20 to 76.1% in 1Q21 due to lower demand for accommodation from companies housing their foreign workers, while RevPAR was weaker at S$51 (from S$71 for FY20) as a result of lower ADRs of S$66 (from S$84 in FY20), and staycation demand at the Sentosa Barracks easing off.
- We see government contracts for isolation demand buoying occupancy, likely extended after mid-May 2021, with better RevPAR visibility in 2H21.
Serviced Residences revenue dipped, but supported by long-stays
- Far East Hospitality Trust's serviced residences revenue fell by ~14% y-o-y and ~9% q-o-q, but it still performed above its fixed rent, with support from long-stay corporate demand, which was at 79.0% of revenue, led by the services trade and y-o-y growth in FMCG and Oil & Gas.
- RevPAU fell 21% y-o-y to S$140 (from S$159 in FY20) due to lower occupancy (83.6% to 74.7%) and 12% y-o-y softer ADRs.
- We expect a weaker 1H as gains from the growth earlier at higher rates ease off.
May prefer redevelopment instead of acquisitions
- Far East Hospitality Trust's leverage rose q-o-q from 40.9% to 41.6%, with S$560m in debt headroom (at 50% limit).
- We see a slow recovery in fundamentals, and as such management could prioritise redevelopment (at Village Residence Clarke Quay) ahead of acquisitions in the near term. Possible government plans, to rezone the asset and lift GFA, from a proposed integrated development are being explored, with details expected by end-2021.
- See
Chua Su Tye
Maybank Kim Eng Research
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https://www.maybank-ke.com.sg/
2021-05-03
SGX Stock
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