A better 2022F
? FEHT’s FY21 DPS of 2.63 scts (+9.1% yoy) came in above expectations.
? 2HFY21 RevPAR/RevPAU declined yoy but improved qoq in 4Q21.
? Reiterate Add. Potential acquisitions serve as a re-rating catalyst.
FY21 DPU beat expectations on lower interest expense
Far East Hospitality Trust’s (FEHT) FY21 revenue was flat yoy at S$83.2m, while NPI increased 4.1% yoy to S$75.2m. While FY21 revenue from hotels increased 4.7% yoy, revenue from serviced residences and commercial premises declined 9% and 8.8% yoy, respectively. Distributable income grew 14.5% yoy to S$54.8m due to lower finance expenses on lower short-term interest rates and lower fixed interest rates on interest rate swap contracts. FY21 DPS grew 9.1% to 2.63 scts, coming in above, at 105.4% of our forecast due to lower-than-expected interest expense.
2HFY21 RevPAR declined yoy but improved on a qoq basis
FY21 hotel revenue per available room (RevPAR) declined c.21.1% yoy to S$56 due to lower average daily rate (ADR; -16.7% yoy to S$70) and occupancy rate (-5.7% pts yoy to 79.4%) as the full impact of Covid-19 was only felt after 1QFY20. 2HFY21 RevPAR declined 6.3% yoy to S$60. While occupancy rate declined 11.4% pts to 81.1% in 2HFY21, due to a reduction in room night volume from companies housing their foreign workers, ADR improved 7.2% yoy to S$74, reflecting the change in guest mix to higher rated leisure and corporate businesses. 4QFY21 performance was boosted by the launch of Vaccinated Travel Lanes in 4QFY21 (RevPAR: +11.7% yoy; +28.8% qoq). As Singapore shifts its approach to live with Covid-19, three out of six hotels in FEHT’s portfolio were no longer under government contracts. The financial impact, however, is minimal as the hotels are trading at minimum master lease income.
SR’s RevPAU improved qoq and performed above fixed rent
Serviced residence (SR) FY21 revenue per available unit (RevPAU) declined 11.9% yoy to S$140 on weaker occupancy (-6.3% pts to 77.5%) and ADR (-4.7% to S$181), due to weaker demand from companies requiring accommodation for their workers. Vis-à-vis 2HFY20, RevPAU declined 6.5% to S$143 on weaker occupancy (-6.1% pts yoy), although ADR improved 0.6%. Despite the weaker RevPAU yoy, SR saw a strong 23.4% qoq RevPAU increase in 4QFY21, and continued to perform above fixed rent levels.
Reiterate Add, with a higher DDM-based TP of S$0.746
We expect better performance from both hotel and SR segments in FY22F, given potentially less restrictive travel measures vs. last year. We raise our FY22-23F DPU by 4.4-5.8%, factoring in lower finance expenses. This lifts our TP, despite the increase in our COE assumption due to the rising rate environment. The divestment of Central Square is on track to be completed by Mar 2022F. With the higher debt headroom post-divestment, FEHT could look to expand its portfolio. Key potential re-rating catalyst: accretive acquisitions. Key downside risks: slower recovery from Covid-19.