Far East Hospitality Trust - Maybank Research 2022-02-15: Recovery Underway; Better Visibility In 2H22

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FAR EAST HOSPITALITY TRUST (SGX:Q5T)

Far East Hospitality Trust - Recovery Underway; Better Visibility In 2H22

Recovery underway

• Far East Hospitality Trust (SGX:Q5T)’s 2H21 DPU jumped ~11% y-o-y/c.39% h-o-h, and was in line with consensus estimates, but ahead of ours due to lower-than-expected finance costs. We see stronger revenue and NPI in FY22E, underpinned by higher occupancy and RevPARs, in line with Singapore’s steady re-opening.
• Near-term RevPAR visibility is low against easing pandemic-driven demand, but should strengthen in 2H22. Divestment of Central Square will bolster its balance sheet, and Far East Hospitality Trust remains our preferred play in an uneven sector recovery.

Hotel revenue flat h-o-h, with RevPAR up

• Far East Hospitality Trust's hotel revenue was flat h-o-h but it rose ~10% y-o-y, at ~68% of total 2H21 revenue, supported by fixed rental from its master leases. Occupancy rose to 83.0% in 4Q21 (from 79.2%/77.6% in 3Q21/1H21) as increase in staycations offset the fall in demand for worker accommodation.
• Government contracts, which remain in place for 5 of its 11 hotels (from 9 in 3Q21), were extended to mid-2022. RevPAR rose to S$60 (from S$52/S$51 in 3Q21/1H21) while ADRs jumped ~17% y-o-y/c.23% q-o-q to S$81 due to a more favourable trade mix (higher corporate demand), and we expect better visibility in 2H22.

Serviced residences lower, with growth in long-stays

• Far East Hospitality Trust's serviced residence (SR) revenue fell ~10% y-o-y/c.4% h-o-h, but continued to perform above its fixed rent, supported by long-stay corporate demand, which made up ~79% of FY21 revenue, led by the services (20%), banking and finance (15%), and electronics and manufacturing industries (14%). RevPAU rose ~6% y-o-y/c.23% q-o-q to S$158, due to higher occupancy, which rose to 85.8% from 71.8%/76.2% in 3Q21/1H21, and ~2% y-o-y higher ADRs.
• We expect further growth in long-stay demand in FY22E and steady expansion in Vaccinated Travel Lanes (VTLs).

Stronger balance sheet

• Far East Hospitality Trust's AUM was stable at S$2.7b as at end-Dec 2021, while the S$313.2m divestment of Central Square at an exit yield of 1.8% is on track to be completed on 24 Mar 2022.
• Far East Hospitality Trust's gearing fell to 38.3% from 41.6% as at end-Sep 2021, and should improve further to 33.5%, as FEHT reduces borrowings, while its debt headroom (at 45% limit) rises from ~S$241m to ~S$534m post-deal. Management will likely to prioritise its Singapore AUM ahead of overseas diversification as it eyes acquisition growth opportunities.
• 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 has a high proportion of minimum fixed rent from its master leases. This offers downside support amid lower RevPAR growth. We fine-tuned forecasts and kept our DDM-based target price (COE: 5.9%, long-term growth 2.0%) at S$0.70 for Far East Hospitality Trust.

Chua Su Tye Maybank Research | https://www.maybank-ke.com.sg/ 2022-02-15

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