Undemanding Valuation, Maintain BUY

• Far East Hospitality Trust (SGX:Q5T)’s 1H20 revenue and NPI fell 20.6% y-o-y and 23.1% y-o-y, while DPU fell 43.4% y-o-y as SGD5.5m was retained to provide rental rebates and deferrals from its commercial tenants. RevPARs/ RevPAUs were weak but declined less than its peers, as occupancies at its hotels and serviced residences (SRs) were bolstered by lower-priced demand substitutes originating from travel and border restrictions.
• Far East Hospitality Trust’s high proportion of minimum fixed rents from its master leases offer downside support amid a slow recovery in 2H. Valuation is undemanding at 0.6x FY20E P/B.
• Maintain BUY and DDM-based Target Price of SGD0.60 (COE: 7.8%, LTG: 2.0%).

Hotel Occupancy Up on Isolation Demand, Worker Housing

• Far East Hospitality Trust's hotel revenues fell 25.6% y-o-y and 31.5% h-o-h, as occupancy that was impacted at the start of the pandemic picked up from Mar. This was driven by demand from government agencies as dedicated facilities for isolation purposes and accommodation for Malaysian workers affected by border closures.
• Occupancy in 1H20 was lower by 11.1ppt y-o-y at 77.6% (vs 65.3% in 1Q20), while RevPAR saw a sharp 42.9% y-o-y decline to SGD79 due to a 34.7% decrease in ADRs to SGD102 as Far East Hospitality Trust relied more on its alternative lower revenue sources.

Serviced Residences Supported by Long-stays, Could Ease Off

• Far East Hospitality Trust's revenue from its Serviced Residences fell only 9.4% y-o-y and 13.4% h-o-h, as a steady base of long leases from its corporate contracts helped support occupancy. While this improved by 1.7ppt y-o-y to 82.7%, RevPAU fell 4.7% y-o-y to SGD166 in 1H20, with a 6.6% y-o-y dip in ADR to SGD200.
• We expect a weaker 2H, as gains from the earlier growth in shorter-term stay bookings at higher rates that contributed about 20% of its Serviced Residences demand, is likely to taper off.

AEI Brought Forward

• Far East Hospitality Trust has completed the AEI at Orchard Rendezvous after a rebranding effort and has brought forward an AEI for the 27-year old Elizabeth Hotel to be undertaken together with its sponsor. This, together with a repainting of Rendezvous Hotel (to be completed at end-2020) should help reposition its assets to dovetail with Singapore’s longer term tourism initiatives and its CBD rejuvenation plans.

Source: Maybank Kim Eng Research - 30 Jul 2020