Chart of the Day: Far East Hospitality Trust's master leases led by fixed rents

Slow demand poses a risk to hotels receiving mainly fixed rents.

This chart from OCBC Investment Research (OIR) shows the proportion of fixed rent to the variable rent component of Ascott Residence Trust (ART), CDL Hospitality Trusts (CDLHT), and Far East Hospitality Trust (FEHT). Amongst these, FEHT has the highest, where fixed rents formed 72% of its master lease rental in 2019, followed by CDLHT and ART with 36% and 30%, respectively.

However, OIR said that there could be a continued risk of hotel operators receiving mainly fixed rent in the coming quarters given a slow demand, which could provide some downside protection amidst COVID-19. Currently, hotels and serviced residences are either closed or operating at low occupancies and weighing heavily on gross revenue.

Hotel operators continue to implement cost mitigating measures and seek alternative sources of revenue, such as providing accommodation for people on self-isolation and workers.

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