Far East Hospitality Trust’s (FEHT) share price performance has been boosted by rapid vaccine development from Pfizer and BionTech, Moderna and AstraZeneca and Oxford University etc. As a pure-play hospitality REIT in Singapore, FEHT’s recovery will largely depend on international tourists’ arrivals which we believe will in turn depend mainly on the availability of Covid-19 vaccines.

While near-term demand will likely be driven by staycation and government bookings, FEHT will benefit as Singapore gradually reopens its borders amid low infection rates, easing travel restrictions and instruction of special travel arrangements. FEHT’s fixed rent component could also provide some buffer and downside protection in the near-term.

Factoring in the development on vaccines, we increase our DPU forecasts for FY20-24F by 1-3% while decreasing our cost of equity assumption to 7.4% to account for the improved sentiment and outlook.

Our fair value estimate hence increases from S$0.58 to S$0.66. HOLD.

Source: OCBC Research - 23 Nov 2020