Operations continue to improve
? 1Q22 income available for distribution grew 17.2% yoy, slightly above
expectations at 28% of our FY22F forecast.
? 1Q22 RevPAR/RevPAU increased yoy on higher rates and occupancy.
? Reiterate Add rating, with a higher DDM-based TP of S$0.78.
1Q22 business update highlights
1Q22 revenue and NPI of S$21m/S$19m (-1.6%/+4.5% yoy) was in line, at 24%/25% of
our FY22F forecasts. The decline in topline was due to lower contributions from the
commercial segment. Income available for distribution of S$14.7m (+17.2% yoy) was
slightly ahead, at 28% of our FY22F forecast, thanks to lower interest expense following
the completion of the divestment of Village Residences Clarke Quay (VRCQ). With the
completion of the VRCQ divestment on 24 Mar 2022, BV/unit improved 1.7% qoq to
S$0.846/unit. Divestment proceeds were used to pare down S$238.6m of term loans,
lowering Far East Hospitality Trust’s (FEHT) gearing to 33.4% as at end-1Q22.
Hotel RevPAR benefited from higher room rates
1Q22 hotel RevPAR increased 15.7% yoy (flat vs. 2HFY21) to S$59, as higher average
daily rate (ADR, +31.8% yoy to S$87) was offset by lower occupancy rate (-8.4% pts yoy
to 67.7%), following the cessation of government contracts for isolation purposes at three
of FEHT’s hotels late last year. However, FEHT was able to replace a portion of the
inventory returned to the public market with a combination of corporate and leisure guests,
thus resulting in higher RevPAR yoy. As at end-1Q22, corporate guests made up 78.2% of
its business, with leisure/independent travelers accounting for the remaining 21.8%. The
bulk of its guests are from Southeast Asia. That said, FEHT’s hotels are still trading at
minimum master lease income, providing stability to its earnings. Looking ahead, asset
enhancements are planned at the Regency House (refurbishment and rebranding), while
The Elizabeth Hotel is expected to undergo an upgrading of reception, common areas and
guestrooms, with the expected opening to be in phases from 3Q22.
SR RevPAU performed better yoy and and remains above fixed rent
Serviced residence (SR) 1Q22 RevPAU increased 24.3% yoy to S$174 on higher
occupancy (+11.9% pts to 86.6%) and ADR (+7.5% to S$201), thanks to support from longstay corporate sources and sustained demand from project groups. SR continued to
perform above its fixed rent level. In terms of inorganic growth, FEHT remains on the
lookout for opportunities, both in Singapore as well as in developed markets overseas.
Reiterate Add rating
We adjust up our FY22-24F DPU estimates by 4.7-5.8% on lower interest expense due to
lower debt level. Consequently, our DDM-based TP is raised to S$0.78. We believe FEHT
will continue to benefit from the expected increase in tourist arrivals following Singapore’s
relaxation of border restrictions. Key potential re-rating catalysts: accretive acquisitions.
Key downside risks: slower recovery from Covid-19