Maybank Kim Eng analyst Chua Su Tye has kept his “buy” call and 70 cents target price on Far East Hospitality Trust.
For 1HFY2021, FEHT’s distribution per unit was up 6.8% y-o-y to 1.1 cents but down 1% over the preceding half year, excluding distribution top-ups in 2H20.
Revenue in the same period dropped by 6.1% to $41.6 million and net property income down 6.2% to $36.2 million, as room rates eased.
FEHT’s portfolio of 13 properties has a total of 3,143 hotel rooms and serviced residence units as at Dec 31 2020, valued at some $2.53 billion.
In his July 30 note, Chua expects FEHT to see a better second half, with its hotel occupancies cushioned by isolation demand in 3Q, while RevPAR should rise towards year-end.
“It remains our preferred play in a (slow) sector recovery, with the high proportion of minimum fixed rent from its master leases offering downside support amid soft RevPAR growth,” he says.
FEHT, according to Chua, now has a gearing of 41.3% as at June 2021, down slightly from 41.6% as at end of March. Given the 45% cap on gearing, FEHT has the room to borrow up to $290 million to fund growth.
“We believe management could prioritise a redevelopment (at Village Residence Clarke Quay) ahead of acquisitions in the near term. Possible government plans, to rezone the asset and lift GFA, from a proposed integrated development, are currently being explored, with details expected by end-2021,” writes Chua.
For now, Chua is keeping his DPU forecast for FEHT at 2.4 cents for the whole of FY2021, an increase from1.7 cents paid for FY2020.
He notes that FEHT is now trading at an undemanding valuation of just 0.7 times price to book, and has a 27% upside to his 70 cents target price.
FEHT closed at 58 cents on July 30, unchanged for the day but down 6.45% year to date.
