Better visibility in 2H22
Recovery underway
FEHT’s 2H21 DPU jumped c.11% YoY/c.39% HoH, and was in line with consensus estimates, but ahead of ours due to lower-than-expected finance costs. We see stronger revenue and NPI in FY22E, underpinned by higher occupancy and RevPARs, in line with Singapore’s steady re-opening. Near-term RevPAR visibility is low against easing pandemic-driven demand, but should strengthen in 2H22. Divestment of Central Square will bolster its balance sheet, and FEHT remains our preferred play in an uneven sector recovery. FEHT has a high proportion of minimum fixed rent from its master leases. This offers downside support amid lower RevPAR growth. We fine-tuned forecasts and kept our DDM-based TP (COE: 5.9%, long-term
growth 2.0%) at SGD0.70.
Hotel revenue flat HoH, with RevPAR up
Hotel revenue was flat HoH but it rose c.10% YoY, at c.68% of total 2H21 revenue, supported by fixed rental from its master leases. Occupancy rose to 83.0% in 4Q21 (from 79.2%/77.6% in 3Q21/1H21) as increase in staycations offset the fall in demand for worker accommodation. Government contracts, which remain in place for 5 of its 11 hotels (from 9 in 3Q21), were extended to mid-2022. RevPAR rose to SGD60 (from SGD52/SGD51 in 3Q21/1H21) while ADRs jumped c.17% YoY/c.23% QoQ to SGD81 due to a more favourable trade mix (higher corporate demand), and we expect better visibility in 2H22.
SRs lower, with growth in long-stays
Serviced residence (SR) revenue fell c.10% YoY/c.4% HoH, but continued to perform above its fixed rent, supported by long-stay corporate demand, which made up c.79% of FY21 revenue, led by the services (20%), banking and finance (15%), and electronics and manufacturing industries (14%). RevPAU rose c.6% YoY/c.23% QoQ to SGD158, due to higher occupancy, which rose to 85.8% from 71.8%/76.2% in 3Q21/1H21, and c.2% YoY higher ADRs. We expect further growth in long-stay demand in FY22E and steady expansion in Vaccinated Travel Lanes (VTLs).
Stronger balance sheet
Its AUM was stable at SGD2.7b as at end-Dec 2021, while the SGD313.2m divestment of Central Square at an exit yield of 1.8% is on track to be completed on 24 Mar 2022. Gearing fell to 38.3% from 41.6% as at end-Sep 2021, and should improve further to 33.5%, as FEHT reduces borrowings, while its debt headroom (at 45% limit) rises from c.SGD241m to c.SGD534m post-deal. Management will likely to prioritise its Singapore AUM ahead of overseas diversification as it eyes acquisition growth opportunities.