<Results Analysis> Far East Hospitality Trust FY21 – A well-anchored ship
- Full year DPU of 2.63 Scts beats our estimates on full year interest savings
- In an encouraging sign, 4Q21 RevPAR saw uptick between 23-29% q-o-q for serviced residences and hotels, driven by inbound travel boost from Vaccinated Travel Lanes and strong domestic staycation demand
- Completion of Central Square divestment in 2Q22 to lead to lower gearing (down to ~33.5% from 38.3%) and potential of capital gain top-ups, which could be shared with investors
- Maintain BUY with unchanged target price at S$0.78
Results Summary
| Summary of results | 2H21 | 2H20 | %h-o-h | FY21 | FY20 | %y-o-y |
| Revenue (S$m) | 41.7 | 39.0 | 7% | 83.2 | 83.3 | 0% |
| NPI (S$m) | 39.0 | 33.6 | 16% | 75.2 | 72.2 | 4% |
| DI (S$m) | 30.3 | 27.5 | 10% | 52.0 | 47.9 | 8% |
| DPU (Scts) | 1.53 | 1.38 | 11% | 2.63 | 2.41 | 9% |
| Key Financial Metrics | FY21 | FY20 | %y-o-y | |||
| Gearing | 38.3% | 39.1% | -0.8 ppt | |||
| Average cost of debt | 1.90% | 3.25% | -1.4 ppt | |||
| ICR (x) | 3.4 | 2.6 | +0.8 | |||
| NAV per unit (S$) | 0.83 | 0.81 | 0.0 | |||
| Key Operational Data | 2H21 | 2H20 | %h-o-h | FY21 | FY20 | %y-o-y |
| Hotels – Occ (%) | 81.1% | 92.5% | -11.4 ppt | 79.4% | 85.1% | -5.7 ppt |
| Hotels – ADR (S$) | 74 | 69 | 7% | 70 | 84 | -17% |
| Hotels – RevPAR (S$) | 60 | 64 | -6% | 56 | 71 | -21% |
| SR – Occ (%) | 78.8% | 84.9% | -6.1 ppt | 77.5% | 83.8% | -6.3 ppt |
| SR – ADR (S$) | 181 | 180 | 1% | 181 | 190 | -5% |
| SR – RevPAR (S$) | 143 | 153 | -7% | 140 | 159 | -12% |
Full year DPU of 2.63 Scts ahead of estimates
- FEHT reported FY21 gross revenue of S$83.2m (flat y-o-y) and NPI of S$75.2m (+4% y-o-y).
- Income available for distribution rose 14.5% y-o-y to S$54.8m.
- This is mostly contributed to savings in finance expenses of c.S$4.3m, due to lower short-term interest rates and lower fixed interest rates post hedging.
- Distributable income for full year at S$52.0m (+10% y-o-y) came in ahead of estimates.
- Approximately S$1.5m worth of rental rebates was given in FY21, of which one-third is concentrated in 2H.
- Full year DPU at 2.63 Scts rose 9.1% y-o-y and is marginally ahead of our estimates at 2.58 Scts.
Hotel performance continues to be well-anchored on master lease structure
- Hotel demand performance was largely skewed towards corporates, which make up about 85% of hotel revenue for the year.
- Corporate demand drivers continue to stem from government contracts and long-stay workers accommodation.
- Long-stay workers accommodation has seen a steady decline as corporates look to house their workers in cheaper long-stay alternatives such as rental housing.
- Proportion of room revenue contribution from Asia grew 6.8ppt to 87.4% reflecting nationality of guests under government booking and long-stay corporate business.
- Full year hotel RevPAR declined 21.1% from S$71 to S$56 on lower average daily rates (-16.7% y-o-y to S$70) and continue to be on challenging terms for most parts of 2021.
- 4Q RevPAR did see a significant surge in RevPAR, up 28.8% q-o-q to S$67 boosted by domestic staycations.
- Hotels revenue continue to be well-sheltered under the existing master lease structure and variable rent component from hotels will be more realistic scenario in 2H22.
- Three hotels recently came off government contracts with three remaining under government contract, which will likely extend to mid-2022
- Renovations at Elizabeth Hotels is in early progress and at the start of construction progress which is expected to take 4 months for completion.
Serviced Residences better positioned for long-term corporate stay
- Serviced residences revenue demand is also skewed towards corporate demand at 79% revenue contribution
- Banking & Finance and Services industries represented the biggest contributors to revenue.
- Full year RevPAR declined 12% y-o-y to S$140 alongside a weak hospitality market, but continue to outperform the hotels segment due to long-stay corporate demand.
- SR RevPAR for 4Q21 also saw an uptick in 4Q21, up 23.4% q-o-q, from higher inbound travellers coming in through Vaccinated Travel Lanes (VTLs).
Capital top ups likely in FY22 post Central Square divestment
- Central Square completion is still underway and on track for completion by 24 March’22.
- The sale price of S$313.2m is a c.58% premium to the last valuation of S$198.3m and on an exit yield of c.1.8%.
- FEHT is expected to achieve an estimated net gain of S$112.0m from this divestment, which could be shared with investors through capital gain top-ups.
- NAV per unit was boosted from 79.2 Scts to 83.2 Scts, as of 31st December 2021, with the crystallisation of Central Square above book.
- We anticipate a further re-rating of NAV as valuations improve to pre-COVID levels from the c.96% of pre-COVID levels on a same-store basis.
Capital Management
- Gearing remains stable at 38.3%.
- Average cost of debt runs at 1.9% with approximately 53% hedged on fixed rates.
- Weighted debt maturity stood at 2.7 years with c.19% and 17% of debt due for refinancing in FY22/FY23.
- Debt due for refinancing this year will be pared down with divestment proceeds, with the balance of proceeds to potentially bring gearing down to 33.5%.
- Interest coverage ratio at 3.4x.
We currently have a BUY call with target price of S$0.78.