Sequential recovery in RevPAR/PAU
• 2H21/FY21 DPU rose 10.9%/9.1% YoY
• RevPAR/PAU improved 29%/23% QoQ in 4Q21
• SRs continued to perform better than hotels
FY21 DPU beat expectations on lower-than-expected finance cost – Far East Hospitality Trust’s (FEHT) 2H21 gross revenue and net property income (NPI) grew 6.9% and 16.1% YoY to SGD41.7m and SGD39.0m, respectively, supported by higher rental income from the hotels segment and lower rental rebates for the commercial premises. 2H21 DPU rose 10.9% YoY to 1.53 S cents, while FY21 DPU was up 9.1% YoY to 2.63 S cents and formed 104% of full-year forecast, above our expectations.
Five of FEHT’s hotels are under government contracts – For hotels, RevPAR improved 29% QoQ in 4Q21 to SGD67 (+12% YoY), supported by higher average daily rate (ADR) of SGD81 (+23% QoQ) and occupancy rate (+3.8ppt QoQ to 83%). The increase in ADR reflected the change in mix towards higher rated corporate and leisure business, together with an increase in ADR secured for the hotels under government contracts. Currently, five of FEHT’s hotels are under government contracts (down from six in 3Q21) with existing contracts expiring in Jun 2022. FEHT aims to secure more corporate contracts and attract staycation demand to mitigate the short-term impact from the loss of income from government
business as inbound travel from VTL takes time to recover. For full year, RevPAR for hotels fell 21% YoY
to SGD56 as the full impact of Covid-19 was only felt after 1Q20.
SRs were supported by long-stay corporate sources – Separately, serviced residences (SRs) RevPAU increased 23% QoQ to SGD158 (+6% YoY), on the back of higher occupancy rate (14ppt QoQ) and ADR (+3% QoQ), benefitting from higher inbound corporate travellers requiring long-stay accommodation. For full year, RevPAU for SRs fell 12% YoY to SGD140. Nonetheless, SRs continued to perform better than hotels and above fixed rent, supported by its long-stay contracts. After adjusting our DPU forecasts and increasing our risk-free rate from 1.9% to 2.1%, our fair value decreases from SGD0.64 to SGD0.61
ESG Updates
According to research, Far East Hospitality Trust’s (FEHT) overall governance framework is on par with that of industry peers. However, evidence suggests the FEHT lags its peers in terms of social and environmental issues. FEHT lacks comprehensive employee management and retention programs. Furthermore, it appears to lack strong programs on integrating sustainability aspects into its property management operations. FEHT undertakes energy efficiency efforts and has acquired third-party green certification (Green Mark). However, the certification extends only to some of its properties (about 23%, as of 2019). HOLD. (Chu Peng)