Sharing a portion of divestment gains
- 1H22 DPU rose 40.0% YoY to 1.54 Singapore cents
- Hotels RevPAR increased 31.4% YoY to SGD67
- SRs RevPAU rose 31.9% YoY to SGD182
1H22 DPU beat expectations on capital distribution – FEHT’s 1H22 gross revenue fell marginally by 1.4% YoY to SGD41.0m due to the divestment of Central Square in Mar 2022. NPI grew 3.5% YoY to
SGD37.5m, mainly attributable to lower financing cost following the repayment of loans from divestment proceeds. FEHT distributed SGD2.0m of divestment gains and intends to distribute ~SGD8m per year over three years to supplement the income loss from divestment while exploring new yield accretive investment opportunities. As a result, 1H22 DPU grew 40.0% to 1.54 Singapore cents.
FEHT’s hotels segment continued to collect fixed rent in 1H22 – For hotels, 1H22 RevPAR improved 31.4% YoY to SGD67, due to higher average daily rate (+50% YoY) while average occupancy rate dropped 9.4 percentage points (ppt) YoY to 68.2%. The decline in occupancy rate was due to the closure of The Elizabeth Hotel which is expected to fully reopen by end of 2022. We understand that FEHT needs to receive at least SGD110 RevPAR for hotels to receive variable income. Currently, three of FEHT’s hotels are under government contracts with one additional hotel to be added to the list in Aug 2022. The four hotels were re-contracted at market rates and will be expiring by end of 2022.
SRs were supported by long-stay corporate sources – Separately, SR’s RevPAU increased 31.9% YoY to
SGD182 in 1H22, on the back of both higher occupancy rate (+12.3 ppt YoY) and ADR (+13.8% YoY), supported by corporate groups and increased demand from professionals requiring long-stay accommodation. Since Singapore’s full opening in Apr 2022, management shared that the average length of stay at FEHT’s hotels and SRs doubled vs pre-Covid to ~10 days and 2 months respectively. After adjusting our DPU forecasts and increasing our risk-free rate from 2.5% to 3.25%, our fair value decreases marginally from SGD0.68 to SGD0.67.
ESG Updates
According to research, FEHT’s 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)
