Far East Hospitality Trust - Early Bird Catches The Worm
- We see compelling reasons to be an “early bird” with imminent catalysts driving to narrow P/NAV gap in the coming years. Far East Hospitality Trust (SGX:Q5T) currently trades at an attractive valuation, offering investors a FY22- 23F CAGR of 15% in DPUs and a pure-play proxy to Singapore’s border re-opening and recovery towards living in an endemic COVID-19 world.
- Critical factor 1: Far East Hospitality Trust's NAV to jump ~5%-6% by end 2022, strong correlation with RevPAR recovery. We believe that markets have not priced in the NAV uplift from the completion of Central Square divestment at a ~58% premium to NAV. This will drive Far East Hospitality Trust's NAV higher and coupled with revaluation gains as RevPAR recovers, we see NAV hitting a multi-year high of S$0.91, bringing its P/NAV down to 0.65x, below historical average, which is close to levels where industry is seeing operational headwinds. Gearing will also drop towards ~33%, which will make Far East Hospitality Trust one of the least geared REIT, providing headroom for future acquisitions.
- Critical factor 2: DPU recovery as variable rents kicks in. With borders re-opening, hoteliers may be able to raise rates and we project RevPAR to double in FY21 and improve a further 40% in FY23, and drive a DPU CAGR of 15% to near pre-COVID levels. As such, we see Far East Hospitality Trust trading closer towards P/NAV of 0.8x-0.85x level, similar to pre-COVID levels, which offers upside of > 20%.
- We reduce our RevPAR recovery trajectory to ~70% of pre-COVID levels for FY22, while pricing in the repayment of debt in mid-22. Target price for Far East Hospitality Trust unchanged at S$0.78.
Above is the excerpt from report by DBS Group Research.
Clients of DBS may access the full report in PDF @ https://www.dbs.com/insightsdirect/.
Geraldine WONG DBS Group Research | Derek TAN DBS Research | https://www.dbs.com/insightsdirect/ 2022-03-08 2022-03-08
Read also DBS's most recent report:
2022-10-28 Far East Hospitality Trust - Variable Hotel Rents Re-emerge!.
Previous report by DBS:
2022-08-05 Far East Hospitality Trust - On Track To Hit Pre-Pandemic DPUs Next Year.
Far East Hospitality Trust Share Price History,
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