Analysts from UOB Kay Hian and Maybank Securities have maintained their “buy” call and raised their target prices on Far East Hospitality Trust (FEHT) after the REIT released its 1HFY2022 results ended June.
UOB Kay Hian had raised its target price from 77 cents to 83 cents, while Maybank lifted its target price to 80 cents from its previous figure of 77 cents.
OCBC Investment Research, however, had a different view, handing the REIT a "hold" call and fair value estimate of 67 cents, down from its previous figure of 68 cents.
The lower fair value estimate was due to the brokerage increasing its risk-free rate from 2.5% to 3.25%, even though FEHT's distribution per unit (DPU) of 1.54 for the 1HFY2022 ended June stood within its expectations.
UOB Kay Hian’s Jonathan Koh writes that reopening borders in April has accelerated the pace of recovery for FEHT. FEHT's DPU also stood “in line with our expectations,” Koh says.
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For its hotel segment, revenue was unchanged with fixed rents of $14.3 million, although occupancy for hotels dropped 9.4 percentage points y-o-y to 68.2% in 1HFY2022 due to the closure of Elizabeth Hotel for renovation.
The average daily rate (ADR) increased 50% y-o-y to $99 in 1HFY2022, due to the return of business and leisure guests and higher rates for government contracts. For the 2QFY2022 alone, Koh estimates that ADR increased 28% q-o-q to $111.
Currently, FEHT has three of its nine hotels on government contracts, extending until end-2022, with revenue per available room (RevPAR) recovering by 31.4% y-o-y to $67 in 1HFY2022. Similarly, Koh estimates that RevPAR has increased 29% q-o-q to $76 in 2QFY2022 alone.
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For the serviced residences segment, occupancy for serviced residences improved 8.2 percentage points to 90.1% in 1HFY2022, with Koh saying that there is “resiliency from long-stay contracts.
ADR increased 6.7% y-o-y to $208 in 1HFY2022 due to an increase in long-stay corporate and project groups, and RevPAR expanded 16.9% y-o-y to $187 in the same period.
Maybank’s Chua Su Tye sees that vacancies will tighten further with rising relocation demand and corporate leasing activities, with room for RevPAR to improve further into 2HFY2022.
In addition to the results, Koh also highlights that management plans to distribute a portion of divestment gain from Central Square at $8 million per year over three years, improving the distribution yield to 6.4% in 2023.
“FEHT trades at a steep 25% discount to NAV per unit of $0.85,” he adds, raising his 2022 DPU forecast by 5.8% due to the “rapid recovery in visitor arrivals and capital distribution from divestment gains.”
In his report, Maybank’s Chua points out that FEHT’s gearing remains low at 33.3%, after divestment proceeds from Central Square in March helped lower borrowings.
Chua estimates that the REIT has a debt headroom of about $660 million, based on a 45% limit.
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FEHT has reduced its fixed-rate debt to 60.9% from 67.6% in 1QFY2022, but with rising interest rates, Chua forecasts a 50 basis points increase in interest rates will lead to lowering DPU by about 3%.
He writes, “we think that management could prioritise AUM growth from its sponsor’s Singapore assets ahead of overseas diversification as it eyes deal opportunities.”
As of 11.56pm, shares of FEHT traded at 64 cents, with an FY2022 P/B ratio of 0.7 and dividend yield of 4.9%.
