CGS-CIMB Research’s Eing Kar Mei and Lock Mun Yee has maintained their “add” rating and target price of 74.5 cents on Far East Hospitality Trust (FEHT) despite its weaker showing in 1HFY2021
In a July 31 report, Eing and Lock highlighted that FEHT reported lower revenue and net property income (NPI) in 1HFY2021, dropping 6% and 6.2% y-o-y respectively.
While revenue from hotels remained flat y-o-y due to fixed rent support, serviced residence revenue declined 7.8% y-o-y to $5.7 million, and revenue from the commercial segment fell 23.2% y-o-y to $7.4 million.
See also: Far East Hospitality Trust bolstered by transient demand and its master lease: Maybank
Despite the weaker NPI, income available for distribution after retention increased 7.6% y-o-y to $21.7 million, thanks to lower finance expense (due to a combination of low short-term interest rates and lower fixed rates) and REIT manager’s fees.
The analysts also note that hotel revenue per available room (RevPAR) declined about 35.4% y-o-y to $51 due to lower average daily room rates (ADR), which fell 35.3% y-o-y. This was due to lower rates from government contracts and companies requiring accommodation for their workers.
However, on a q-o-q basis, RevPAR increased 2% due to higher local corporate demand for their employees as Covid-19 cases surged at workplaces.
The analysts say that six out of nine FEHT hotels are under government contracts currently. The near-term intention is to keep all government contracts as borders remain closed.
As for the serviced residences segment, revenue per available unit (RevPAU) declined 16.9% y-o-y on weaker occupancy, falling 6.5% to 76.2%.
Average daily rate also dropped 9.5% to $181 due to weaker demand from companies requiring accommodation for their workers.
Despite the decline in RevPAU, the serviced residences segment was supported by master lease rental which registered a smaller decline of 7.8% yoy in 1HFY2021. “Overall, FEHT’s SR continued to perform above fixed rent levels.” they say.
But Lock and Eing think the serviced residences segment will continue to face downward ADR pressure due to a lack of long-stay corporate demand.
Meanwhile, occupancy for office developments remained stable at 80%, but retail occupancy was weaker y-o-y, coming in at 70%.
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They note that a change in the lease structure from fixed to turnover based and rental rebates led to weaker y-o-y revenue and NPI, but FEHT hopes to achieve 80% retail occupancy by year-end, and has set aside some income for rental rebates in 2HFY2021.
Despite these, the analysts say they “continue to like FEHT for its strong master lease income support (about 80% of 1HFY2021) which enhances income stability and limits downside risks.”
As at 2.57 pm, units in FEHT are trading at 60 cents, with an FY2021 price to book ratio of 0.74 and 4.3% dividend yield.
