1Q22 Operational Update: Hotel RevPAR well-supported as government contracts taper off
- FEHT reported gross revenue of S$20.971m (-1.6% y-o-y) and distributable income of S$14.693 (+17.2% y-o-y)
- Key positives: (i) Hotel RevPAR remains stable at S$59 supported by higher room rates, (ii) Another three of FEHT’s assets are off government bookings and on the market, (iii) Capital Management robust with 33.3% gearing
- Datapoints to look out for: (i) Acquisitions to yield accretion on low cost of borrowing (1.7%) with interest in the UK or Japan, (ii) Full interest savings impact to reflect in 2Q22, (iii) AEI works at The Elizabeth Hotel and Regency House in 3Q22 to increase competitive advantage in a rising hotel market
- Maintain BUY with TP of S$0.78
Operational Update
| Summary of results | 1Q22 | 2H21 | % q-o-q | 1Q21 | %y-o-y |
| Revenue (S$m) | 21.0 | 20.8 | 0.6% | 21.3 | -1.6% |
| NPI (S$m) | 19.0 | 19.5 | -2.4% | 18.2 | 4.5% |
| DI (S$m) | 14.7 | 15.1 | -2.9% | 12.5 | 17.2% |
| Key Financial Metrics | 1Q22 | 2H21 | % q-o-q | 1Q21 | %y-o-y |
| Gearing | 33.4% | 38.3% | -4.9 ppt | 41.6% | -8.2 ppt |
| Average cost of debt | 1.7% | 1.90% | -0.2 ppt | 2.20% | -0.5 ppt |
| ICR (x) | 3.7 | 3.4 | 0.3 | 2.7 | 1.0 |
| WADE (yrs) | 3.1 | 0.83 | 2.3 | 2.6 | 0.5 |
| Key Operational Data | 1Q22 | 2H21 | % q-o-q | 1Q21 | %y-o-y |
| Hotels – Occ (%) | 67.60% | 81.1% | -16.6% | 76.1% | -11.2% |
| Hotels – ADR (S$) | 87 | 74 | 17.6% | 66 | 31.8% |
| Hotels – RevPAR (S$) | 59 | 60 | -1.7% | 51 | 15.7% |
| SR – Occ (%) | 86.60% | 78.8% | 9.9% | 74.70% | 15.9% |
| SR – ADR (S$) | 201 | 181 | 11.0% | 187 | 7.5% |
| SR – RevPAR (S$) | 174 | 143 | 21.7% | 140 | 24.3% |
Operational Update
- FEHT reported gross revenue of S$20.971m (-1.6% y-o-y) and NPI of S$19.015 (+4.5% y-o-y) for 1Q22.
- Topline revenues saw an incremental contribution from the service residences segment (+2.4% y-o-y), flat contribution from the hotels segment which comprise of fixed rent from master leases and lower revenue (-9.6% y-o-y) from the commercial segment due to divestment of Central Square, which was completed in Mar’22.
- Distributable income rose 17.2% y-o-y to S$14.693m due to lower finance expenses, and in line with our full year estimates at S$58.1m
Key observations
RevPAR remains stable post expiry of government contract supported by a c.18% q-o-q improvement in ADR; Debt repayment with Central Square divestment brings gearing down to 33.3%
- For the hotels segment, occupancy declined 8.4pp year-on-year to 67.7% as another three of FEHT’s hotels that were on government booking tapered off in late December 2021. There remains three assets that are still on government block booking within the portfolio with tentative expiry in 3Q22 on rolling forward basis.
- Average daily room rate rose 31.8% y-o-y to S$87 on higher corporate and leisure rates.
- RevPAR rose 15.7% y-o-y to S$59 for the hotels segment.
- Revenue from the hotels segment continue to be flat or on the fixed master lease rent levels of S$14.25m per quarter.
- For the serviced residences segment, occupancy rose 11.9 ppt y-o-y to 86.6%.
- ADR grew 7.5% to S$201 and continues to see sustained demand from corporate and project groups.
- Correspondingly, RevPAR rose 24.3% to S$174.
- Across FEHT’s hospitality portfolio, corporate segment continue to contribute c.76% – 78% of room demand in 1Q22.
- Balance sheet continues to see improvement post debt repayment of S$239m.
- Gearing improved from 38.3% as at FY21 to 33.3% this quarter, full impact of interest cost savings associated with this repayment should reflect in 2Q22.
- ICR improved to 3.7x to 2.7x
- Asset enhancements for this period include refurbishment of lobby at Regency House and upgrading of reception and guestrooms at The Elizabeth Hotel, both of which are slated for completion in 3Q22.
- FEHT continues to be on a keen look out for acquisitions given the robust gearing level of 33.3%. Geographies of interest include Japan and UK, while sponsor ROFR pipeline in Singapore may be revisited again next year when operational metrices further stabilise.
We currently have a BUY recommendation with a TP of S$0.78.