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Far East Hospitality Trust bolstered by transient demand and its master lease: Maybank

Jovi Ho
Jovi Ho • 3 min read
Far East Hospitality Trust bolstered by transient demand and its master lease: Maybank
Occupancy improved y-o-y to 97.3% from 92.3%, supported by contracts from government agencies as isolation facilities.
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Amid slow recovery forecasted for 2021, Far East Hospitality Trust continues to be bolstered by “transient demand” and high proportion of minimum fixed rent from its master lease, says Maybank analyst Chua Su Tye in a Nov 1 note.

Chua is recommending ‘buy’ on the REIT with a target price of 60 cents.

“FEHT’s Singapore-focused operations in 3Q20 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%,” says Chua.

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 3Q20 and 65.9% for 9M20.

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 1H20 to 84.2% in 9M20, revenue per available room (RevPAR) fell 55.8% y-o-y to $67 in 3Q20 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 4Q20.

In October, FEHT reported gross revenue of $20.6 million for 3QFY2020, down 33.2% from the $30.9 million a year ago. This was due mainly to a decline in master lease rental for the hotels and serviced residences arising from the impact of Covid-19.

See: Far East Hospitality Trust reports 36.4% lower NPI in 3Q business update

FEHT is the first and only Singapore-focused hotel and serviced residence hospitality trust listed on the SGX, 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 193-room upscale Outpost hotel.

In July, the company’s RevPARs/RevPAUs declined less than peers in 2Q20 due to demand from government agencies to use as isolation facilities and to house workers affected by border closures.

On serviced residences, revenue fell 22.7% y-o-y but rose 3.1% q-o-q and performed above its fixed rent, supported by long-stay corporate demand.

Occupancy dipped y-o-y to 87.1% (from 88.2%) but was stable at 84.2% for 9M20. RevPAU declined 20.1% YoY to $157 in 3Q20 and 10.3% y-o-y for 9M20 as ADR fell 19.0% and 11.1%, with a cut-back in shorter-term stay bookings.

“We expect a weaker 2H20, as gains from the earlier growth at higher rates that contributed 18.6% of its SR demand, will continue to ease off,” says Chua.

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.

As at 11.55am, units in FEHT are trading at 4 cents higher, or 6.72% up, at 63.5 cents.

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