UOB Kay Hian analyst Jonathan Koh has maintained his “buy” call on Far East Hospitality Trust (FEHT).
Catalysts to the counter's share price include recovery in occupancy, average daily room rate and RevPAR in 2022, as well as the acquisition of the remaining 70% stake of three Sentosa hotels, says Koh.
In an August 13 report, Koh highlighted that FEHT’s fixed rents from its master leases would allow it to weather a bumpy recovery, driven by Singapore’s border reopening. Slated for 4Q2021, the initial recovery would be modest, eventually becoming more broad-based in 2H2022.
Koh pointed out that the establishment of travel corridors with low-risk countries will lead to an ease of the requirements for the stay-home notice (SHN).
Currently, fully vaccinated travellers from Brunei, New Zealand, China, Hong Kong, Macau and Taiwan are already allowed to serve their SHNs at their place of residence. Meanwhile, travellers from Australia, Austria, Canada, Germany, Italy, Norway, South Korea and Switzerland would be able to do so from August 20.
Fully vaccinated travellers from low-risk countries are expected to be able to travel freely within Singapore upon receiving a negative polymerase chain reaction (PCR) test result at the Changi Airport.
FEHT and City Developments Limited (CDL) have established a joint venture (JV) to redevelop Central Square and Central Mall. The JV is working on obtaining outline permission and planning permission to rejuvenate the precinct, says Koh. Earlier this year, it received outline advice from the Urban Redevelopment Authority under an incentive scheme in response to a joint outline application.
The analyst pointed out that FEHT would reap a meaningful divestment gain given the uplift in plot ratio of Central Square (Village Residences Clarke Quay), which is valued at $198 million as at December 2020. This could be distributed to unitholders over several quarters to smooth out distribution per unit (DPU), says Koh.
Meanwhile, Koh added that the reduction of management fees payable to the REIT manager, which the company announced in March last year, is meant to be permanent.
The new management fee structure, which was changed to a base fee of 0.28% and a performance fee of 4% of net property income or 4% of distributable income - whichever is lower - is already enshrined in FEHT’s trust deed, Koh said in the note.
Koh also highlighted that FEHT is leading the S-REIT industry, ranking second out of 43 REITs and businesses trusts on the Singapore Governance and Transparency Index 2021. Last year, it ranked fourth out of 45.
Koh’s target price of 71 cents is expected to give FEHT a 20.3% upside. He has also kept his DPU forecasts unchanged.
As at 3.15 pm, units in FEHT remained unchanged at 58 cents, representing 0.7 times P/B and an FY2021 DPU yield of 4.0%, according to UOB Kay Hian's estimates.
