• Gross revenue for 1Q24 rose by 7.5% YoY to S$27mn on the back of leisure recovery, attributed to several mega concerts in 1Q24, accounting for 23% of our FY24e estimates. NPI increased by 6% YoY to $25mn due to stabilized electricity costs, which was within our expectations. DPU for 1Q24 was not disclosed.
• ADR increased by 8.8% YoY to S$179 as all hotels emerged from government contracts and rising international visitor arrivals to 91% of the pre-COVID level. However, RevPar lagged behind, growing 6.7% YoY to S$144, as the occupancy rate contracted by 5ppt YoY. Some hotels had just exited government contracts and are still ramping up their occupancy.
• We reiterate our BUY recommendation with an unchanged DDM-TP of S$0.79 and FY24e-25e DPU forecasts of S$4.35 to S$4.45 cents. We expect RevPAR to continue inching up in the face of a stable supply of middle-tier hotels to support ADR and the return of international visitors due to lines of MICE events to boost occupancy rates. FEHT is currently trading at FY24e dividend yields of 7.1% and 0.66x P/NAV.

The Positives

+ Mega concert-led leisure recovery. Mega concerts drove the recovery in leisure. Supported by series of mega concerts such as Taylor Swift’s Eras Tour and Coldplay in 1Q24, ADR increased by 8.8% YoY, reaching S$179. However, the occupancy rate slid by 1.5ppt YoY as Village Hotel Albert Court and Oasia Hotel Novena exited government contracts at the end of FY23 and were re-marketing. FEHT managed to secure ADR at 40-50% higher than usual during the concert period. RevPAR for 1Q24 increased by 6.7% YoY, reaching 102.9% of the pre-COVID level. 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 (Singapore Tourism Board’s target of 15mn -16mn for 2024). We also foresee an uplift in the occupancy rate with a target of mid-80% in FY24 (pre-COVID: high-80%).

+ Improved financial position and ready to acquire. FEHT refinanced a S$164 mn loan with a  20-30bps lower margin. With the more hawkish BOJ, the REIT is taking time to screen for DPU accretive acquisitions. In 1Q24, the leverage ratio remained stable at 31.3%, with debt headroom of c.S$900 mn (gearing at 50%). The cost of debt in Japan saw a slight increment of 10-20bps, leading to a slightly higher cap rate. This would compress the positive carry by c.0.5% to c.2%.

The Negative

– Limited upside from recovery. We expect a fading recovery in FY24e as international visitor arrivals are already at 91% of the pre-pandemic level. Singapore Airlines Group passenger capacity has returned to c.97% of the average capacity in 2019. We remain cautious about the sustainability of the underlying earnings due to seasonality and the influx of event-driven tourism in 1Q24.

Source: Phillip Capital Research - 2 May 2024