Far East Hospitality Trust - Reason For Optimism
- Latest hospitality data suggest strong pricing power by hoteliers, as reflected in May-Aug 22 RevPAR numbers, which have recovered to 93-104% of 2019 levels. RevPAR recovery is ahead of our expectation as we previously expected full recovery to materialise in 2024F.
- We raise our numbers for Far East Hospitality Trust (SGX:Q5T) to factor in
- stronger recovery,
- divestment of Village Residence Central Square (VRCS) and
- S$8.3m per annum in divestment gains to be distributed over the next three years.
- We raise our same-store FY22F/23F revenue forecast for Far East Hospitality Trust by 5.1%/29.9% to factor in stronger recovery. Despite FY22F revenue dipping 1.9% as a result of the divestment of Village Residence Central Square (VRCS) on 24 Mar 2022, FY22F DPU increased due to the pro-rated distribution of divestment gains.
- In addition to the recovery of its hospitality portfolio, Far East Hospitality Trust undertook AEIs during the pandemic to update the look of the façade and public spaces as well as refresh the tenant mix of its ancillary office and retail space which accounts for ~19% of revenue as at FY21. We understand from management that the refreshed F&B and service offerings have been well-received and it has noted an uptick in corporate dining during lunch hours.
- Far East Hospitality Trust has the strongest balance sheet amongst hospitality names. It recognised net divestment gain of S$112m on its timely divestment of Village Residence Central Square (VRCS), which was sold at 57.9% premium to 4QFY20’s book value. This reduced its gearing to 33.5% post-divestment. Our numbers have not factored in the S$18m incentive fee payable by City Developments if City Developments is able to obtain provisional permission for the change of use of the VRCS site by 31 December 2023.
- We think interest rate risk is limited given 60.9% of Far East Hospitality Trust’s interest rate is hedged and only 18% of loans to be refinanced over FY22-23F.
- Our FY22F-24F DPU forecast for Far East Hospitality Trust are raised 8.5-25.6% as we move up our recovery timeline and factor in S$8.3m per annum in distributed divestment gains. Reiterate ADD. Our DDM-based target price for Far East Hospitality Trust is raised from S$0.78 to S$0.80 following our higher DPU forecasts.
- Far East Hospitality Trust's Share Price is trading at FY22F/23F DPU yield of 5.2%/7.6%. Our target price implies FY23F DPU yield of 5.7% which is attractive at +0.2 standard deviation of historical average.
Above is the excerpt from research report by CGS-CIMB.
Clients of CGS-CIMB may access the full report in PDF @ https://www.itradecimb.com.sg/.
LOCK Mun Yee CGS-CIMB Research | Natalie ONG CGS-CIMB Research | https://www.cgs-cimb.com 2022-10-07 2022-10-07
Read also CGS-CIMB's most recent report:
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