Far East Hospitality Trust - DBS Research 2022-08-05: On Track To Hit Pre-Pandemic DPUs Next Year

Far East Hospitality Trust (FEHT)'s 1H22 Results

• Far East Hospitality Trust (SGX:Q5T) reported a gross revenue of S$41mil for 1H22 (-1.4% y-o-y).
• NPI rose 3.5% y-o-y to S$37.5mil despite disposal of Central Square.
• Distributable income rose 14.4% y-o-y to S$29mil, making up 50% of our full year distributable income forecast of S$58.1mil. 2H22 could post stronger performance vis-à-vis 1H22 as restrictions eases and travel continues to ramp up.
• DPU surged 40% y-o-y to S$0.0154, exceeding our half yearly estimates of S$0.0147 (full year forecast at S$0.0293).
• Far East Hospitality Trust will be sharing divestment gains from Central Square divestment – of approximately S$8mil per year for 3 years (FY22-25).
• Capital gains top up this year has been quantified to be S$6.2mil this year, or approximately 9 months pro-rated for this year to cover 9 months income lost from central square, ~S$0.0031 per share. This translates to an additional ~S$0.0040 per share per annum in capital gains distribution, which poses as an upside to our current estimates.
• Far East Hospitality Trust's gearing remains stable at 33.3%, with 61% of debt currently hedged on fixed rates. There will be no more refinancing due for this year and ~18% of borrowings up for renewal in FY23. Current average cost of debt at 1.8% with expectations to increase ~40bps towards year end.

Potential for variable hotel rents in 2H22

• 1H22 Hotel RevPAR (revenue per available room) led by higher ADR (average daily rate). RevPAR improvements this half was primarily led by higher daily rates, which surged 50% y-o-y to S$99 in 1H22. More optimism in 2H22 with Elizabeth Hotel to be added back to Far East Hospitality Trust room inventory post-reopening and the return of corporate travellers to benefit hotels within the central business district catchment such as Oasia Downtown.
• Progress of incentive fee associated with Central Square divestment. There remains ~S$18m in incentive fees in relation to Central Square divestment pertinent on authorities approval under the redevelopment scheme. We await further news on this and for the incentive fee to crystalise, which will come in year-end or 1Q23 at the earliest. This could potentially be paid out to unitholders or used as acquisition proceeds.
• Increased length of stay. Like sharing by other hotel operators, similarly Far East Hospitality Trust has also seen an increase in length of stay across the portfolio. Prior to COVID, Far East Hospitality Trust’s length of hotel stay averaged at about three days, and one month for serviced residences. This has generally seen a doubling in 1H22.
• Hotels RevPAR has re-rated to about S$75, or crossing the 50% level compared to pre-pandemic performance, this is not withstanding the lack of contributions from Elizabeth hotel.
• While not currently priced in our estimates, there remains a possibility that Far East Hospitality Trust will be in a place to receive variable master lease rents from the hotels segment should annualised RevPAR cross the ~S$120 threshold.

Maintain BUY

• Maintain BUY recommendation on Far East Hospitality Trust with target price of S$0.78. Capital gains top ups an upside to estimates.