CGS-CIMB Research and OCBC Investment Research believe that master lease income will continue to underpin Far East Hospitality Trust's (FEHT) performance for the rest of the year after it reported its 1QFY2021 ended March business update on April 30.

CGS-CIMB analysts Eing Kar Mei and Lock Mun Yee say that FEHT’s 1QFY2021 distributable income of $12.5 million (-1% y-o-y) was in line with their estimates, supported by fixed rent.

The analysts note that while revenue for the period fell by 7% y-o-y to $21.3 million due to weaker performance from serviced residences, lower finance expenses and REIT manager fees kept distributable income relatively flat. 


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They highlight that serviced residences’ revenue per average unit (RevPAU) declined 21% y-o-y, driven by lower occupancy and lower average daily rate (ADR) caused by dwindling long-stay and foreign worker guests as well as lower contribution from leisure guests.

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For the hotel portfolio, Eing and Lock point out that despite higher occupancy (+10.8 percentage points) y-o-y, ADR was 54% lower as most of the hotels were under government contracts or bookings for foreign workers that commanded lower rates. Consequently, revenue per average room (RevPAR) declined 46% y-o-y.

They expect the hotel segment to continue being largely supported by government contracts and master lease income in FY2021. For serviced residences, they note that the segment could potentially hit just fixed rent should borders remain closed for another quarter. 

“We expect a stable performance in FY2021, supported by master lease income and lower finance costs,” they conclude. They maintain their ‘add’ rating for FEHT with an unchanged target price of 74.5 cents.

Meanwhile, OCBC’s Chu Peng views the serviced residence portfolio as more resilient than hotels despite its weaker y-o-y performance, given that it remained above fixed rent for the 1QFY2021. 


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Similar to Eing and Lock, Chu believes the hotel segment will continue seeing mainly fixed rent in the coming quarters, as it will take time to vaccinate the population and resume international travel.

She notes that six out of FEHT’s nine hotels are currently on government isolation businesses with existing contracts expiring in mid-May, which is likely to be extended further based on management’s expectation. 

“We understand that FEHT needs to receive at least $150 ADR and occupancy rate of 80% for hotels to receive variable income,” she points out.

Units in FEHT closed 1.5 cents or 2.38% lower at 61.5 cents on May 3.