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Far East H-Trust DPS for H1 slides 43.4% to 1.03 S cents

FAR East Hospitality Trust's (Far East H-Trust) distribution per stapled security (DPS) fell by 43.4 per cent to 1.03 Singapore cents for its first half ended June 30, 2020, from 1.82 cents a year ago.

The managers had retained part of the distributable income to provide for further rental rebates and deferment in rental payments by tenants in the months ahead to help tide them over the challenging Covid-19 period.

Income available for distribution after retention stood at S$20.2 million, down 42.3 per cent year on year from S$35 million.

Without the retention, income available for distribution would be S$25.7 million, down 26.5 per cent from S$35 million a year ago.

The managers said the eventual distribution of the retained amount will depend on the financial results for the full year ending Dec 31, 2020. They intend to maintain the policy of distributing at least 90 per cent of the real estate investment trust's (Reit) taxable income.

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Gross revenue was down 20.6 per cent to S$44.3 million for the first half, from S$55.7 million a year ago.

This was due to the negative impact of the Covid-19 pandemic, the stapled group's managers said in a regulatory filing on Thursday.

The relatively high fixed rent component of the master lease rental provided downside protection to the gross revenue, they added.

Net property income declined 23.1 per cent on the year to S$38.6 million for the first half, from S$50.2 million.

Far East H-Trust's average occupancy rate for hotels stood at 77.6 per cent for H1 2020, down from 88.7 per cent in H1 2019. Meanwhile, its average occupancy rate for serviced residences improved slightly to 82.7 per cent, from 81 per cent a year ago.

Hotel revenue per available room (RevPAR) for H1 2020 stood at S$79, down 42.9 per cent from S$138 a year ago. RevPAR for serviced residences fell 4.7 per cent to S$166 for the first half of the year, from S$174 a year ago.

The distribution will be paid out on Sept 14, after the record date on Aug 11.

Gerald Lee, chief executive of the Reit manager said the Covid-19 pandemic has dealt a severe blow to the hospitality industry.

The impact on Far East H-Trust's hotels deepened as international travel restrictions tightened, although it was cushioned in recent months by contracts from government agencies for isolation purposes and from companies for their workers.

However, the trust's serviced residences were affected to a lesser extent as they had longer leases from corporate accounts.

He said the full impact of the adverse operating conditions is mitigated by the master leases for Far East H-Trust's hotels and serviced residences, signed with companies of the sponsor.

The fixed rent component - which formed about 72 per cent of the master lease rental in fiscal 2019 - provides a minimum payment and downside protection for stapled securityholders.

Moreover, the management fee structure review undertaken in end-2019 by the Reit manager resulted in lower management fees for the trust starting 2020.

In a flash note on Thursday, DBS Group Research maintained its "buy" call on Far East H-Trust with an unchanged target price of S$0.60. DBS analyst Derek Tan said the stapled group's H1 DPS was in line with estimates.

The research team sees minimum downside risk to H2 2020 earnings from H1 2020 levels, given the strong support from fixed master lease hotel rents and stable contributions from the serviced residences and commercial revenue streams.

"This leaves room for upside potential should RevPAR deliver a surprise in H2 2020 as local staycation demand kicks off," he said.

Stapled securities of Far East H-Trust were trading down 0.5 Singapore cent or 1 per cent to 49 cents as at 4.19pm on Thursday.

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