Far East Hospitality Trust
Price target: Maybank Kim Eng “buy” 60 cents Lift from transient demand and support from master lease
Amid slow recovery forecasted for 2021, Far East Hospitality Trust (FEHT) continues to be bolstered by “transient demand” and a high proportion of minimum fixed rent from its master lease, says Maybank Kim Eng analyst Chua Su Tye, who is calling a “buy” with a 60 cents price target.
“FEHT’s Singapore-focused operations in 3Q2020 continued to be bolstered by transient demand originating from travel and border restrictions, with occupancies for its hotels and serviced residences (SRs) high at 87% to 97%,” he says.
FEHT’s hotel revenue, cushioned by fixed rent from its master lease rental, fell 33.8% y-o-y and 0.1% q-o-q, and contributed 69.1% of gross revenue in 3Q2020 and 65.9% for 9M2020.
Occupancy improved y-o-y to 97.3% from 92.3%, supported by contracts from government agencies as dedicated facilities for isolation purposes, as well as accommodation for Malaysian workers affected by border closures, notes Chua.
Despite a pick-up in occupancy from 77.6% in 1H2020 to 84.2% in 9M2020, revenue per available room (RevPAR) fell 55.8% y-o-y to $67 in 3Q2020 on the back of a 58.1% y-o-y decline in average daily room rate (ADR). Staycation demand at the Barracks (40 rooms) and Oasia Downtown (314 rooms) could gain traction from 4Q2020.
FEHT is the first and only Singapore-focused hotel and serviced residence hospitality trust listed on the Singapore Exchange, with 13 properties in its portfolio.
In September 2018, FEHT rebranded the Orchard Parade Hotel to Rendezvous Orchard Hotel following its refurbishment. In April 2019, the REIT opened two hotels in Sentosa: the 606-room mid-tier Village hotel and the 193-room upscale Outpost hotel.
Chua notes that various asset enhancement initiatives (AEIs) should help reposition FEHT’s assets towards Singapore’s longer-term tourism initiatives and its CBD rejuvenation plans. They include a repainting of the Rendezvous Hotel by end-2020, an upgrading of the Orchard Rendezvous outdoor refreshment area, and the renovation of the Elizabeth Hotel together with its sponsor.