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Tuesday, August 25, 2020

Far East Hospitality Trust Analysis @ 25 August 2020

Basic Profile & Key Statistics

Far East Hospitality Trust (FEHT) is a stapled group that consists of Far East Hospitality Real Estate Investment Trust (Far East H-REIT) and Far East Hospitality Business Trust (Far East H-BT).  FEHT invests in hospitality properties in Singapore which consist of 9 hotels and 4 serviced residences. Some of the properties have space for retail and office.


Lease Profile

All of FEHT leases are master leases to subsidiaries to sponsor, REVPAU of S$ 94.5 is manually calculated from the latest presentation of 1H 2020, weighted by GRI. WALE is long at 10.57 years where the highest lease expiry of around 61% falls in the year 2032, still a long time. Weighted land lease expiry is slightly short at 62.96 years.


Debt Profile

Gearing ratio is slightly high at 39.2%. Cost of debt is low at 2.5% despite 100% unsecured debt. Fixed-rate debt is low at 60.3% which is favorable in current low-interest environment. Interest cover ratio is low at 2.7 times. WADE is moderate at 2.8 years where the highest debt maturity of 22.8% falls in the year 2021 and 2024, both are identical.


Diversification Profile

All of FEHT properties are in Singapore. Its top property and top tenant are the same at 18.3%, which is low in terms of top property contribution but high in terms of top tenant contribution. Top 10 tenant is high at 76.5%.


Key Financial Metrics

Property yield is low at 3.5%. FEHT retains S$ 5.5 mils from distribution, therefore affected management fees over distribution, distribution on capital, and distribution margin, the values are 18.6%, 2.5%, and 57% respectively. Without retention, the values are at 17%, 2.6%, and 62.3% respectively. Management fee and distribution remain high while distribution on capital remains low.


Related Parties Shareholding

From business update as of 31 March 2020, sponsor stake is at 61%. However from latest annual report and SGX "Disclosure of Interest/ Changes in Interest of Substantial Shareholder(s)", I could only get 58.87%. As compared to SREITs median, sponsor, manager and directors of manager holding a higher stake.


Trend

If we only look at pre-COVID time, DPU, NAV per unit and distribution margin are on downtrend.


Relative Valuation

i) Average Dividend Yield  - Average yield at 6.17%, apply the past 4 quarters DPU of 3.02 cents will get S$ 0.49. If we considered without retention for COVID, DPU would be 3.28 cents which translates into S$ 0.53.

ii) Average Price/NAV - Average value is at 0.72, apply the latest NAV of S$ 0.857 will get S$ 0.615.


Author's Opinion

FavorableLess Favorable
WALEInterest Cover Ratio
Cost of DebtTop Geographical Weightage
Unsecured DebtTop Tenant & Top 10 Tenants Weightage
Well Spread Debt MaturityProperty Yield
Top Property WeightageManagement Fee
Distribution MarginDPU Downtrend
 NAV per Unit Downtrend
 Distribution Margin Downtrend

The master leases with fixed rent have provided downside protection for FEHT. Its serviced residences occupancy remains resilence due to a high proportion of corporate guests. Management has also reviewed its fee structure which results in a lower management fee effective from January 2020. With green lane/fast lane open for more countries and the recently launched SingapoRediscovers campaign, the hospitality sector including FEHT would surely benefit from it.


The above analysis information is extracted from SREITs Dashboard, you are welcome to use the information there for your analysis. You could also refer SREITs Data for an overview of Singapore REITs. If you like my sharing, please join the Facebook group - REIT Investing Community where you could read, share, and discuss REITs related topics. Please also invite your like-minded friends to the group. 


*Disclaimer: Materials in this blog are based on my research and opinion which I don't guarantee the accuracy, completeness, and reliability. It should not be taken as financial advice or statement of fact. I shall not be held liable for errors, omissions as well as loss or damage as a result of the use of the material in this blog. Under no circumstances does the information presented on this blog represent a buy, sell, or hold recommendation on any security, please always do your own due diligence before any decision is made.

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