FY22 DPU of 1.6355 Scts (on a 90% pay-out ratio) was behind our estimates
- FHT reported 2H22 gross revenue and NPI of S$51.8 (+17% h-o-h) and S$37.9m (+20% h-o-h), respectively.
- Distributable income for 2H22 rose 32% h-o-h to S$19.9m.
- Correspondingly, on a full-year basis, gross revenue was up 12.1% to S$95.9m while NPI was up 20.7% y-o-y to S$69.6m, making up 97%/95% of our full-year estimates.
- Income available for distribution rose 66.3% to S$35m.
- The stronger full-year NPI and DI performance was due to lower property tax expenses post valuation and recovery of receivables that were previously impaired, partly neutralised by the divestment of Sydney Sofitel Wentworth, which was completed in Apr 22.
- DPS for 2H22 at 0.9316 Scts rose 32% h-o-h while full-year DPU at 1.6355 Scts was behind our estimates on a 90% payout ratio (vs. 100% in our estimates) and higher-than-expected operating expenses.
Singapore and UK-led recovery in 2H22
- Singapore-led recovery in 2H22 with gross operating revenue (GOR) up 76% h-o-h and gross operating profit (GOP) up 88% h-o-h.
- Australia saw lower gross operating profit this half due to the divestment of Sydney Sofitel Wentworth, which was completed in Apr 22, with GOP declining 5.6% h-o-h.
- Japan’s GOR rose by 14% h-o-h on international border relaxation, but GOP reduced h-o-h due to higher operating expenses with the roll-off in government wage subsidies going into 2H22.
- Germany and UK recovered from a low base, seeing more than double GOR h-o-h.
- RevPAR continues to be below pre-pandemic levels across all markets, with Japan a low-hanging market.
Capital management stable post SSW divestment and debt repayment
- Approximately S$300m from the proceeds from the SSW divestment has partially gone towards debt repayment post divestment in Apr 22.
- As such, gearing ended the year at 36.4% (from 42.2% in end-FY21) with a weighted debt maturity of 2.0 years.
- Average cost of debt stood at 2.3% with 82% of borrowings hedged on fixed rates.
- FHT plans to increase the current fixed hedge ratio towards 90% in the coming round of debt renewals.
- Approximately 21% and 28% of total borrowings will be up for renewal in FY23 and FY24.
- NAV/share ended the financial year at S$0.65, implying a P/NAV of c.0.69x currently (current share price of S$0.445) and trades below the sector average at c.0.8x P/NAV.
Valuation up in local currency (LCL) terms across most markets; potential asset rebranding as hotel management contracts expire
- In LCL terms, FHT’s portfolio assets saw a y-o-y uplift across all major markets with the exception of Japan (flat y-o-y) and Germany (-0.5% y-o-y).
- UK and Malaysia saw the sharpest gain in valuation, up 5.4% y-o-y and 3.3% y-o-y (LCL terms).
- Singapore and Australia saw more muted gains in valuations, up 0.6% y-o-y and 2.0% y-o-y, respectively, (LCL terms).
- Factoring in exchange rate movements, FHT’s portfolio saw a 4.4% y-o-y decline in SGD terms due to currency weakness of the JPY and euro.
- Portfolio rejuvenation continues to be a priority for FHT, which we think will come in the form of asset rebranding and repositioning of portfolio assets as hotel management contracts come due in the coming few years.
- Third-party acquisitions continue to be looked upon keenly with the intention of more diversification across geographical markets and into long-stay lodging products.
Maintain BUY with lower TP of S$0.58. We roll forward valuations into FY23, while pricing in softer estimates on higher interest rate assumptions, NPI margins, and an adjusted risk-free rate of 3.5%. The interest rate is assumed to increase another +50bps/+70bps in FY23/FY24 from the current cost of debt. NPI margins have been reduced by 2ppt to reflect higher operating cost. No acquisitions have been assumed in our forward assumptions.
FY23/FY24 DPU estimates revised to 2.25 Scts/2.61 Scts (on adjusted 90% pay-out ratio), translating to a forward yield of 5.0%/5.8% on the last share price of S$0.45.