The Positives
+ Recovery on track. ADR exceeded pre-COVID levels, reaching S$170 for FY23, propelled by the recovery in flight capacity. However, RevPAR lags behind, standing at 95% of pre-COVID levels owing to a 9% gap in occupancy rates (FY19: 89.1% vs. FY23: 80.1%). We expect RevPAR to continue trending upward in FY24, with more support from Q2 onwards due to seasonality. Income from variable rental surged by more than six times, surpassing pre-COVID levels by 1% and contributing to 25% of gross revenue amidst the leisure recovery. We expect a decline in contributions from corporate travelers, potentially driving ADR higher in the absence of corporate discounts. Occupancy is forecast to ramp-up in FY24e, thanks to major events such as the Taylor Swift Eras Tour and Singapore Airshow in 2024; current forward bookings appear promising.
+ Potential inorganic growth. FEHT is one of the least geared SREITs with a leverage ratio of 31.3% and debt headroom of c.S$900mn (Gearing at 50%). However, they identify limited growth potential in Singapore due to the tight spread between funding cost and asset yield. There are no near-term plans for acquiring more stake in Sentosa since the ticket size is large and EFR is off the table. The focus remains on low-interest-rate countries such as Japan, with the possibility of acquiring sponsor’s assets in Tokyo and a positive carry of c.2.5%.
The Negative
– Interest rate creeping up. The cost of debt for FY23 was 3.3%, and FEHT expects the rate to increase to c.4% in FY24 when hedges drop off, as only 42.6% of the debt is hedged at a fixed rate.
Source: Phillip Capital Research - 15 Feb 2024
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Created by traderhub8 | Jun 03, 2024