Analysts have taken a strong liking for Far East Hospitality Trust (FEHT) following its results for FY2021 ended Dec 31 2021.
The trust – which has a portfolio of Singapore-focused hotels and serviced residences – reported a 4.1% y-o-y increase in its net property income to $75.2 million. This comes despite revenue coming in flat y-o-y on $83.2 million.
In this time, revenue from hotels was up by 4.7% y-o-y while that from serviced residences and commercial premises declined by 9% and 8.8% y-o-y respectively.
As such, hotel revenue per available room, or RevPAR, declined by 21.1% y-o-y to $56 due to lower average daily rates (down 16.7% y-o-y to $70) and occupancy rates (down 5.7 percentage points 79.4%). This is as the full the full impact of Covid-19 and the resultant movement restrictions was only felt after 1QFY2020.
Maybank analyst Chua Su Tye observes that occupancy levels at FEHT’s hotels rose to 83% in 4Q2021 (from 77.6% in 1H2021) amid an increase in staycations.
With this, FEHT’s RevPAR for the final quarter of the year rose to $60, from $51 in 1H2021, while average daily rates jumped by 17% y-o-y to $81 due to a more favourable trade mix.
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Meanwhile, revenue per available unit, or RevPAU, of serviced residences was down by 11.9% to $140 in FY2021. This follows weaker occupancy levels (down 6.3 percentage points to 77.5%) and average daily rates (down 4.7% to $181) following weaker demand from companies requiring accommodation for their workers.
To this end, distributable income for FY2021 was up by 14.5% y-o-y to $54.8 million on the back of lower finance expenses on lower short-term interest rates and lower fixed interest rates on interest rate swap contracts.
Distribution per stapled security (DPS) grew to 9.1% to 2.63 cents in FY2021, from 2.41 cents in the year before.
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This is “above and at 105.4% of our forecast due to lower-than-expected interest expense,” CGS-CIMB analysts Eing Kar Mei and Lock Mun Yee write in a Feb 16 note.
Maybank’s Chua says that FEHT’s 2H2021 DPU – which was up 10.9% y-o-y to 1.53 cents, from 2.63 cents in 2H2020 – was “in line with consensus estimates but ahead of ours due to lower-than-expected finance costs”.
See: Far East Hospitality Trust posts 10.9% higher 2HFY2021 DPS of 1.53 cents
Going forward the analyst is expecting “stronger revenue and net property income in FY2022, underpinned by higher occupancy and RevPARs, in line with Singapore’s steady re-opening”.
She adds that while “near-term RevPAR visibility is low against easing pandemic-driven demand”, it should strengthen in 2H2022.
FEHT stands to gain from a stronger balance sheet following the $313.2 million divestment of Central Square, at an exit yield of 1.8%, which is set to be completed on Mar 24, says Chua.
As at end December 2021, FEHT’s Assets Under Management (AUM) was stable at $2.7 billion.
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Even as its gearing fell to 38.3% (from 41.6% as at end September 2021), Chua is expecting it to improve further to 33.5% as the trust reduces borrowings while raising its debt headroom from $241 million to $534 million, after the divestment.
“Management will likely to prioritise its Singapore AUM ahead of overseas diversification as it eyes acquisition growth opportunities,” mulls Chua.
In this vein, Chua and CGS-CIMB’s Eing and Lock have posted “buy” and “add” calls respectively on FEHT.
“We expect better performance from both hotel and serviced residences segments in FY22, given potentially less restrictive travel measures vs. last year,” explain Eing and Lock.
The duo, who have a target price of 74.6 cents, have raised their FY2022 DPU by 4.4% to 5.8%, after factoring in lower finance expenses.
Meanwhile, Chua believes that her 70 cent price target on the counter will give it 24% upside from its 59 cent price on Feb 15.
As at 12.30pm on Feb 18, units in FEHT were trading flat at 60.5 cents.
Cover image: FEHT
