Far East Hospitality Trust - OCBC Investment 2021-08-02: Look Forward To Border Reopening

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FAR EAST HOSPITALITY TRUST (SGX:Q5T)

Far East Hospitality Trust - Look Forward To Border Reopening

• Retention of S$3.5m of distributable income.
• Hotels RevPAR and SRs RevPAU fell 35.4% and 16.9% y-o-y.
• SHN business likely to continue into Oct.

Far East Hospitality Trust's 1H21 DPU fell 6.8% y-o-y

• Far East Hospitality Trust (SGX:Q5T)’s 1H21 gross revenue and net property income (NPI) dropped 6.1% and 6.2% y-o-y to S$41.6m and S$36.2m, respectively, mainly due to lower rental income from the serviced residences (SRs) segment, rental rebates and weaker demand for the commercial premises.
• Far East Hospitality Trust retained S$3.5m of distributable income for potential rental waivers for its commercial tenants. As such, 1H21 DPU declined 6.8% y-o-y to 1.10 cents, making up 43%/41% of ours/the street’s estimates. However, assuming 100% payout ratio (Far East Hospitality Trust released the retained 1H20 distributable income of S$5.3m in 2H20), 1H21 DPU would have been 1.27 cents, in-line with our expectations.

Hotels on fixed rent while SRs performed above fixed rent

• For hotels, occupancy rate remained supported by SHN business and contracts from companies which required accommodation for their Malaysian workers, albeit at lower rates. As such, 1H21 hotels RevPAR fell 35.4% y-o-y to S$51 (ADR: -35.3% y-o-y, occupancy rate remained static at 77.6%).
• Separately, 1H21 SRs RevPAU declined 16.9% y-o-y to S$138 on the back of lower occupancy rate (-6.5ppt y-o-y) and ADR (-9.5% y-o-y). On a q-o-q basis, RevPAU for SRs fell 3% as corporates sourced for alternative, cheaper accommodations for their workers, while hotel RevPAR was flat in 2Q21, based on our estimates. Nonetheless, SRs continued to perform better than hotels and above fixed rent.

Downside support from fixed rent component

• Six out of Far East Hospitality Trust’s 9 hotels are currently on government isolation businesses with existing contracts expiring in mid-Aug but could potentially be extended for another 2 months, providing income support before the border reopens by end of the year. As international border remains largely closed, income will continue to be supported by government contracts, long-stay corporate contracts and fixed rent in the near-term.
• We pare down our DPU forecasts for FY21 and FY22 by 3%. After adjustments and applying a slight ESG discount, our fair value estimate for Far East Hospitality Trust decreases slightly from S$0.66 to S$0.64.
• See
  • Far East Hospitality Trust's Share Price,
  • Far East Hospitality Trust's Target Price,
  • Far East Hospitality Trust's Analyst Reports,
  • Far East Hospitality Trust's Dividend History,
  • Far East Hospitality Trust's Announcements,
  • Far East Hospitality Trust's Latest News.

Far East Hospitality Trust - ESG Updates

• Far East Hospitality Trust’s overall governance framework is on par with that of industry peers. However, evidence suggests the Far East Hospitality Trust lags its peers in terms of social and environmental issues. Far East Hospitality Trust lacks comprehensive employee management and retention programs. Furthermore, it appears to lack strong programs on integrating sustainability aspects into its property management operations.
• Far East Hospitality Trust undertakes energy efficiency efforts and has acquired third-party green certification (Green Mark). However, the certification extends only to some of its properties (about 23%, as of 2019).

Chu Peng OCBC Investment Research | https://www.iocbc.com/ 2021-08-02

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