Maybank Securities’ Krishna Guha, UOB Kay Hian’s Jonathan Koh and PhillipCapital’s Liu Miao Miao have maintained their “buy” calls on Far East Hospitality Trust Q5T (FEHT) with unchanged target prices of 80 cents, 82 cents and 79 cents respectively. These positive outlooks follow FEHT’s results for the 1QFY2024 ended March 31.
On April 30, FEHT reported gross revenue of $27.1 million for the quarter, 7.5% higher y-o-y, while net property income (NPI) rose by 6.0% y-o-y to $25.1 million. The better performance comes after the recent recovery in the leisure sector and strong room rates.
“Mega concerts drove the recovery in leisure. Supported by a series of mega concerts such as Taylor Swift's Eras Tour and Coldplay in 1QFY2024, ADR (average daily rate) increased by 8.8% y-o-y, reaching $179,” notes Liu.
Despite the boost from concerts and meetings, incentives, conferences and exhibitions (MICE) events, occupancy for hotels and serviced residences dropped by 1.5 percentage points (ppt) y-o-y to 80.4% due to Oasia Hotel Novena and Village Hotel Albert Court exiting government contracts at the end of FY2023.
Cushioned by flat-to-higher room rates, revenue per available room (RevPAR) for hotels increased by 6.7% y-o-y to $144 in 1QFY2024, recovering to 5% above pre-pandemic levels.
However, RevPAR for serviced residences experienced a 1.5% decrease in RevPAR, notes Maybank Securities’ Guha.
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Due to the expiration of a few long-stay contracts at the start of 2024, occupancy declined by 3.7 ppt y-o-y to 83.3% in 1QFY2024. Despite this, ADR grew 2.9% y-o-y.
“The serviced residences have secured new contracts, which will bring occupancy to a similar level to last year,” notes Guha.
Despite the drop in RevPAR of serviced residences to $221 in 1QFY2024, this was still 27% above pre-pandemic levels.
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“We expect RevPAR to maintain at the current level with slight improvement as ADR is expected to trend higher in the face of a stable supply of mid-tier hotels and increasing international visitors,” says Liu.
Additionally, Guha notes that FEHT remains one of the “lowest” geared SREITs with an aggregate leverage of 31.5%.
The REIT is currently trading at a price-to-book ratio of 0.67 times at a “steep” 33% discount against net asset value (NAV), says Koh.
However, the REIT’s average cost of debt has increased by 0.5 ppt q-o-q to 3.7% in 1QFY2024. With a low fixed rate hedge ratio of an estimated 42.6%, management anticipates the average cost of debt to stand at 4% in 2024 due to higher replacement interest rates.
UOB Kay Hian’s Koh also notes rising contributions from the REIT’s commercial premises at its hotels and serviced residences. Due to higher occupancies and rental rates for its office and retail space, revenue increased 10% y-o-y in 1QFY2024.
Positive outlooks for FEHT also stem from the continued recovery for the hospitality sector in Singapore.
“The outlook is positive due to an active event calendar with FHA-Food & Beverage, Asia Tech x, Rotary International Convention, World Congress of Anaesthesiologists and Women’s World Golf Championship in 2QFY2024,” says Koh
As at 1.25pm, shares in FEHT are trading at 1 cent higher or 1.65% up at 61.5 cents.
