Far East Hospitality Trust - Maybank Research 2022-08-01: Recovery Underway

FAR EAST HOSPITALITY TRUST (SGX:Q5T)

Far East Hospitality Trust - Recovery Underway

Far East Hospitality Trust (SGX:Q5T)’s 1H22 DPU jumped 40% y-o-y from 4% y-o-y NPI growth and divestment gains. Its hotels continue to be backed by fixed rents, but NPI recovery is underway, as RevPAR growth gains traction into the seasonally stronger 2H, with tailwinds from Singapore’s reopening.

Far East Hospitality Trust's balance sheet is stronger, and better placed to support acquisition growth upside.

Far East Hospitality Trust's hotel revenue was flat y-o-y and q-o-q in 2Q22, supported by fixed rental from its master leases, while contributing ~71% of total revenue (vs ~68% in 1Q22). Occupancy improved marginally to 68.2% in 1H22 (vs 67.7% in 1Q22) but ADR jumped ~50% y-o-y, resulting in ~31% y-o-y better RevPAR.
Four of Far East Hospitality Trust's nine hotels are on isolation contracts at higher rates until early 2023.
Elizabeth Hotel’s AEI seems well-timed; its reopening in 3Q22 dovetails with rising tourist arrivals and longer average stays, and should support a stronger RevPAR recovery in 2H22.

Far East Hospitality Trust's serviced residence (SR) revenue fell ~19% y-o-y/c.22% q-o-q in 2Q22 with Central Square’s divestment, otherwise its 1H22 revenue rose ~12% y-o-y. It continued to perform above fixed rent, supported by long-stay corporate demand, at ~71% of 1H22 revenue (vs ~76% in 1Q22), led by the banking & finance (18%), services (14%), and electronics & manufacturing (12%) trades. RevPAU rose ~32% y-o-y to S$182 in 1H22 on better occupancies (76.2% to 88.5%) and ~14% y-o-y higher ADR.
We see vacancies tightening further with rising relocation demand and corporate leasing activities, with room for RevPAU to improve further into 2H22.

Far East Hospitality Trust's gearing remains low at 33.3%, after divestment proceeds (in Mar 2022) helped lower borrowings, with debt headroom estimated at S$660m (45% limit).
Far East Hospitality Trust has reduced its fixed-rate debt to 60.9% (from 67.6% in 1Q22) with a 50bps increase in interest rates lowering DPU by ~3%.
See
We think that management could prioritise AUM growth from its sponsor’s Singapore assets ahead of overseas diversification as it eyes deal opportunities.
We raise our DPU forecast for Far East Hospitality Trust by 4-5% to factor in expected capital distributions from the Capital Square sale (at S$8m per year through FY24E), and lift our DDM-based target price (COE: 5.6%, LTG: 2.0%) for Far East Hospitality Trust to S$0.80 (from S$0.77). Maintain BUY.

Chua Su Tye Maybank Research | https://www.maybank-ke.com.sg/ 2022-08-01

SGX Stock Analyst Report BUY MAINTAIN BUY 0.800 SAME 0.800