Far East Hospitality Trust - Maybank Kim Eng 2021-07-30: Glass Half Full

FAR EAST HOSPITALITY TRUST (SGX:Q5T)

Far East Hospitality Trust - Glass Half Full

Far East Hospitality Trust (SGX:Q5T)’s 1H21 DPU was up 6.8% y-o-y, but lower by ~1% h-o-h, excluding distribution top-ups in 2H20. Revenue and NPI both fell ~6% y-o-y but rose by ~7% h-o-h and ~8% h-o-h, as declines in RevPAR and RevPAU eased for its Singapore hotels and serviced residences (SR) portfolio.

We see a better 2H, with its hotel occupancies cushioned by isolation demand in 3Q, while RevPAR should rise towards year-end. It remains our preferred play in a (slow) sector recovery, with the high proportion of minimum fixed rent from its master leases offering downside support amid soft RevPAR growth.
Our DPU forecasts for Far East Hospitality Trust are unchanged.
Far East Hospitality Trust's valuation is undemanding at 0.7x P/B and 27% upside to our S$0.70 DDM-based target price (COE: 5.4%, LTG: 2.0%).

Hotel revenue was flat y-o-y but rose ~10% h-o-h, to ~69% of revenue in 1H21, supported by fixed rental from its master leases. Occupancy stayed at 77.6% in 1H21, from government isolation contracts, and demand for accommodation from firms housing their Malaysian workers, while RevPAR was weaker at S$51 (from S$79 for 1H20), as ADRs fell ~35% y-o-y to S$66 (from S$102).
While we expect similar demand to buoy occupancy in 3Q21, rising vaccination rates and a resumption of travel arrangements in 4Q21 should lift RevPAR, and strengthen visibility in FY22.

Far East Hospitality Trust's Serviced Residences revenue fell by ~8% y-o-y and ~6% in 1H21, from – ~16% y-o-y and – ~2% h-o-h in 2H20. It continued to perform above its fixed rent, with support from long-stay corporate demand, which was at ~78% of revenue, led by the services (at ~20%), and banking and finance industries (~15%).
RevPAU fell ~17% y-o-y to S$138 (from S$166) due to lower occupancy (82.7% to 76.2%) and ~10% y-o-y softer ADRs. We expect further long-stay demand in 2H21, which should pick-up towards end-2021.

Far East Hospitality Trust's gearing was stable at 41.3% (from 41.6% as of end-Mar 2021), with a S$290m debt headroom (at 45% limit). We believe management could prioritise a redevelopment (at Village Residence Clarke Quay) ahead of acquisitions in the near term.
See
Possible government plans, to rezone the asset and lift GFA, from a proposed integrated development, are currently being explored, with details expected by end-2021.

Chua Su Tye Maybank Kim Eng Research | https://www.maybank-ke.com.sg/ 2021-07-30

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