Analysts have maintained their "add" and “buy” calls on Far East Hospitality Trust Q5T (FEHT), following the release of the REIT’s 1HFY2024 results ended June.
Citi Research and DBS Group Research have left their target prices unchanged at 73 cents and 78 cents respectively, while CGS International has upped its target price to 78 cents. Maybank Securities has lowered its target price estimate to 75 cents.
According to Citi Research analyst Brandon Lee, the REIT’s 1HFY2024 distribution per unit (DPU) benefitted from portfolio-wide revenue per available room (RevPAR) improvement.
“1HFY2024 results showcased continued recovery across both Hotels and Serviced Residences (SR) as RevPAR reached 102% and 130% of pre-Covid level, respectively,” says the analyst in his July 30 note.
In 1HFY2024, the REIT’s DPU increased by 2% y-o-y to 1.96 cents, driven by net property income (NPI) growth of 1% y-o-y to $49.5 million.
This came on the back of higher revenue growth of 3% which was mitigated by the REIT’s higher operating expenditures resulting in NPI margins contracting by 2.2 percentage points.
The analyst adds that outside of FEHT’s operating drivers, DPU growth also reflected higher other gains increasing by 56% y-o-y to $6.2 million and the release of additional $2.2 million to cushion higher interest rate impact and a higher payout of 99.9% of taxable income.
The REIT’s gearing has also “improved slightly”, decreasing by 1% percentage points q-o-q to 30.8%.
In the analyst’s view, this implies a debt headroom of approximately $357 million before hitting 40% gearing levels.
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This comes alongside higher interest rates of 4.1% and a lower fixed debt proportion of 35.9%.
Lee adds: “Management is factoring in around 100 basis points reduction in interest rates for FY2025 and expects interest cost to decline y-o-y from 1HFY2025; however, 2HFY2024 will likely be broadly in line with 1HFY2024.”
As at 1HFY2024, FEHT’s net asset value per share stood at 92 cents, up 2% y-o-y and 1% q-o-q.
Similarly, DBS Group Research maintains a positive outlook on FEHT, highlighting the REIT’s commercial segment.
“Amongst the operating segments, commercial premises registered the strongest growth at 7.3% y-o-y, which we associate with the new leases signed post asset enhancement initiatives (AEI) at selected hotels,” says the team.
The REIT’s recent AEI completions include a new bar concept, Another Bar, which has since opened at Rendezvous Hotel.
Meanwhile, FEHT’s hotel segment and serviced residence segment rose 2.8% y-o-y and 2.1% y-o-y, respectively, on higher operating RevPAR.
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Additionally, 2QFY2024 saw the hotel segment boosted by efforts to increase occupancy, which was up 5.6 percentage points (ppt) y-o-y to 80.4%.
Room rates remained “flat” and were down 1.3% y-o-y, while overall RevPAR rose 6.0% y-o-y to $139. Within the serviced residence segment, occupancy dipped by 2.8 ppt alongside a 6.8% y-o-y increase in room rates.
This resulted in a “stable” RevPAR growth of 3.5% y-o-y to $231, which was driven by a mix of higher-paying short-stay guests for the period.
That said, key downside risks identified by Lee include a slowdown in arrivals growth due to weakness in regional economies; cautious corporate demand leading to weak hotel room rates; and the strong Singapore dollar impeding arrival growth from key regional countries such as Indonesia and Malaysia.
CGSI analysts Natalie Ong and Lock Mun Yee see FEHT as a "laggard" that's playing catch-up with its RevPAR. Though its RevPAR for the 2QFY2024 and 1HFY2024 grew y-o-y to slightly over its 2QFY2019 and 1HFY2019 levels, the analysts see that there is more room for growth.
" During the 1HFY2024 analyst call, management shared its differentiated approach to increasing RevPAR – it will prioritise occupancy over average daily rate (ADR) at properties with higher vacancy rates, such as Orchard Rendezvous and Changi Village Hotel, while pushing ADR at properties with healthy occupancy, such as Oasia Downtown," they write.
Management also indicated that it remains on the look-out for acquisitions and is waiting for more favourable interest rate environment to do so.
"Potential pipeline assets from its sponsor include the remaining 70% stake in the joint venture holding the three Sentosa hotels, The Clan and Oasia West Residence. Management is also looking at assets in Japan that are smaller in quantum, compared to the larger-quantum Singapore assets, which would likely require equity fund raising to acquire," they note.
FEHT's 1HFY2024 DPU stood in line with Ong and Lock's expectations at 46.5% of their full-year estimates. Their raised target price is due to rolled-over estimates to FY2028.
Maybank analyst Krishna Guha has lowered his DPU forecasts by 2.5% on average in addition to his lowered target price. This is mainly due to lower proportion of fees in units, partly offset by higher top-ups, he says.
However, he remains positive on FEHT due to its stable distribution profile from master leases and low gearing.
As at 4.41pm, shares in FEHT are trading at 0.5 cents lower or down 0.79% at 62.5 cents.
