Analysts from CGS-CIMB Research, Maybank Kim Eng and OCBC Investment Research (OIR) have all given “buy” or “add” calls on Far East Hospitality Trust (FEHT) with target prices of 63.9 cents, 70 cents and 66 cents respectively.
The REIT reported distribution per unit (DPU) stood 36.7% lower y-o-y at 2.41 cents for the FY2020, which came relatively in line with expectations at CGS-CIMB and OCBC.
The REIT also saw lower gross revenue and net property income (NPI) dropping 34.8% and 38.0% y-o-y to $39 million and $33.6 million respectively for the 2HFY2020 mainly due to lower master lease rental income and rental rebates given to commercial tenants.
For Chu, she expects hotels under the trust to remain on fixed rent in the 1HFY2021, and sees more income visibility in the 2HFY2021 with the rollout of the Covid-19 vaccines, she writes in a Feb 15 report.
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The way she sees it, FEHT’s average daily room rates (ADRs) are likely to have bottomed out in FY2020 but occupancy “could be under pressure as the isolation business tapers off and competition intensifies for corporate businesses.”
However, she believes that FEHT’s fixed rent component which formed about 77% of gross revenue in FY2020 could continue to provide some buffer and downside protection.
Meanwhile, CGS-CIMB’s Eing Kar Mei and Lock Mun Yee have elaborated that based on their estimates, hotel revenue per available room (RevPAR) declined 9% q-o-q in 4QFY2020 on lower occupancy, due to lower demand from foreign workers as they switched to other housing alternatives.
Eing and Lock highlighted that the average daily room rate (ADR) was flat q-o-q at $84 and the REIT believes that it should be supported at this level in the near term. Furthermore, only three of FEHT’s nine wholly-owned hotels are available for leisure guests.
They add that as borders remain closed, “we expect its hotel business to continue to be supported by master lease income in 2021. The recovery of hotels will hinge on the pace of Covid-19 vaccinations in Singapore.”
Once the majority of Singapore residents are vaccinated, the analysts believe borders will slowly open to countries with lower infection rates.
While the Serviced Residences segment continued to receive variable rent, Revenue per available unit (RevPAU) weakened by 4.7% q-o-q in 4QFY2020 due to weaker occupancy. Similar to the hotel business, Eing and Lock said the serviced residences business was affected by demand from foreign workers as they switch to other housing alternatives.
ADR for these residences was flat q-o-q, and the REIT hopes to maintain the rate at current levels in the near term.
SEE: GDP slowdown and trade war take their toll on local hospitality sector
“Despite border closures, we understand that there is still demand from corporates. Going forward, we expect serviced residences to see weaker demand as long-term guests switch to other alternatives.” they noted.
As for its commercial segment, the retail business which forms two-thirds of its commercial segment should deliver stronger income in FY2021 due to lower or no rental rebates.
“We raise our FY2021-2023 DPU by about 2% as we update for FY2020 numbers and increase commercial segment income. We believe that compared to its peers, FEHT has the most resilient income as its hospitality segment is backed by master leases and hence income from this segment would remain stable.” Eing and Lock conclude.
Separately, Maybank Kim Eng’s Chua Su Tye broadly concurred with the points above but said as the REIT’s balance sheet is “sound”, with about $200 million of debt headroom, he thinks management could prioritise redevelopment at Village Residence Clarke Quay ahead of acquisitions in the near term, given soft demand fundamentals.
As at 3.10 pm, shares of FEHT were trading at 59.5 cents, with a FY2021 price to book ratio of 0.73 and dividend yield of 4.37%, according to CGS-CIMB.
