Far East Hospitality Trust - DBS Research 2023-02-15: Full DPU Recovery To Drive Share Price Higher

• Far East Hospitality Trust (SGX:Q5T) reported 2H22 revenue and NPI of S$42.6m (+2.2% y-o-y) and S$39.9m (+2.3% y-o-y), respectively. On a same-store basis, NPI would have increased by 10.5% y-o-y, but was set back by
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  2. The Elizabeth Hotel’s renovation and rebranding in 2H22.
• This brings full-year revenue and NPI to S$83.6m (+0.4% y-o-y) and S$77.3m (+2.9% y-o-y), respectively.
• Income available for distribution rose 7.5% y-o-y to S$59.0, on the back of lower finance expenses and distribution of capital gains from the Central Square divestment.
• Far East Hospitality Trust's FY22 DPU rose 24.3% y-o-y to 3.27 cents, in line with estimates of of 3.24 cents.

Hotel segment: Reaping fruits of past year’s AEIs

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• The lower occupancy was due to the exit of government contracts on full 100% occupancy, which tapered off on a y-o-y basis.
• Most of the recovery was seen in the second half of the year, which saw a 93% y-o-y increase in RevPAR to S$116 (led by a 99% y-o-y increase in ADR as opposed to occupancy). This narrows the gap against the variable rent threshold for FEHT at ~S$125 (RevPAR basis) across the portfolio.
• Government contracts were also renewed at higher rates, which are now in four assets (two hotels, two serviced residences) from our understanding, and will be expiring in mid-2023. RevPAR for Vibe Hotel (rebranded from The Elizabeth Hotel) grew 64% to S$92 post launch in November last year.
• A total of three assets across the portfolio have received master leasevariable rents including one asset that is still held under government contract.

Serviced residences segment: Buoyed by tight room supply

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Geraldine WONG DBS Group Research | Derek TAN DBS Research | https://www.dbs.com/insightsdirect/ 2023-02-15 SGinvestors.io

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