<First Take> FY23 Results – Going from strength to strength
- Gross revenue rose 28% y-o-y to S$106.8m, FY23 DPS rose 25% y-o-y to 4.06 scts and ahead of our estimates
- Variable income saw a six-fold increase y-o-y to exceed pre-COVID levels, on a 36% y-o-y increase in hotel revenue from a low base; More upside to ensue from AEI completions and rebranding this year
- Valuation up 2.6% y-o-y mirroring peers performance within the SG market; Capital management stable with a reduction of interest rate hedge to 42.6%
- We currently have a BUY rating with TP of S$0.75; Under Review
FY23 Results
- Gross revenue in 2H23 rose 28.6% y-o-y to S$54.8m
- Full year gross revenue and NPI rose 27.8% y-o-y to S$106.8m and 27.7% y-o-y to S$98.7m respectively.
- Stronger rebound from the hotels segment revenue which rose 36% y-o-y, and to a smaller extent Serviced Residences (7.9% y-o-y) and Commercial segment (9.2% y-o-y).
- Variable income from both the hotels and SR segment rose c.6x y-o-y to S$17.1m and above FY19 levels.
- As such full year DPS rose 25.1% y-o-y to 4.09 Scts, including S$8.2m in divestment gain proceeds from Central Square.
- Hotels segment saw recovery from both corporate and leisure bookings; RevPAR rose 48% y-o-y to S$136
- Hotels segment occ rose 6.3ppt y-o-y to 80.1%, while ADR rose36.1% y-o-y to S$170
- Serviced Residences (SR) segment RevPAR rose 14.7% y-o-y to S$229 (same-store basis excluding Central Sq divestment), a new high since IPO
- SR occ was flat at 88%, with most of the upside from higher room rate pricing, which rose 15.3% y-o-y to S$260.
- Capital Management: Aggregate leverage remains healthy at 31.3%, with average cost of debt of 3.3%; Interest coverage ratio of 3.5x.
- Proportion of fixed IR hedge has reduced to 42.6% as at 31 Dec 2023 (from 54% as at 4Q22) and stands as one of the lowest within the sector.
Our thoughts
Asset valuation mirrors peers with a 2.6% y-o-y gain. FEHT reported a valuation gain on investment properties of c.S$59.2m for the year, supported by a 2.7% y-o-y increase in hotel valuations and 1.7% y-o-y increase in service residences valuations. Valuations gains are well-supported by underlying cash flow, with further upside concentrated within the hotels segment in our view. FEHT’s hotels that are positioned within the upscale has seen a operational ceiling last year effected by both government quarantine contracts in the early part of last year and AEI or rebranding within the portfolio, which has seen room inventory shelved for hotels such as Vibe Hotel’s rebranding in late 2022 and soft refurbishment works at Oasia Downtown hotel. Going into 2024, we estimate that all room inventory should be released into the market, potentially commanding higher rates on AEI completions.
Hotels RevPAR at S$136 continues to buoyant upside potential. FEHT’s first saw RevPAR exceed 2019 levels in 3Q23, a recovery that came slower than peers that are positioned within the luxury-end of the segment. We see FEHT’s offerings within the upscale hotel tier to be in the sweet spot for return of budget conscious and corporate travellers, or the group of travellers that will be catalysed by flight recovery and moderation in ticket prices. Hotels within the upscale and mid-tier segments has generally lagged in terms of recovery, at c.117% above pre-COVID base rates (3Q23 figures), to luxury and economy positioned hotels. We see as the sweet spot of daily rates within the pocket-friendlier range of S$200 to S$300+ per night which will continue its appeal to the mass market travellers where FEHT has the largest exposure in.
FEHT: FY23 Revenue breakdown in comparison to FY19
Source: Company, DBS Bank