Far East Hospitality Trust - CIMB Research 2018-01-02: Incorporating Acquisition And Higher Organic Growth

Far East Hospitality Trust - CIMB Research 2018-01-02: Incorporating Acquisition And Higher Organic Growth FAR EAST HOSPITALITY TRUST Q5T.SI

Far East Hospitality Trust - Incorporating Acquisition And Higher Organic Growth

  • We now project 10% growth in FY18F DPU, boosted by potential accretive acquisition of sponsor’s Oasia Hotel Downtown and recovery in Singapore's hotel market. We assume a 5% entry yield on S$283m valuation for Oasia Hotel Downtown.
  • Given the cyclical recovery in Singapore hotel market, we project a 5% yoy rise in Far East Hospitality Trust (FEHT)’s Singapore hotel RevPAR in FY18F, and another 7% in FY19F.
  • We model in a relatively gradual recovery path for serviced residences. We project a 4% yoy recovery in FY18F.
  • Upgrade from Hold to Add with projected returns of 23% in 2018F, one of the highest within our REIT coverage universe.



Incorporating potential acquisition of Oasia Hotel Downtown… 

  • With the potential acquisition of Oasia Hotel Downtown in sight, we now factor in this probable event. We assume a 5% entry yield on S$283m property valuation (assuming S$900k/key), which would be fully debt-funded at 2.5% interest cost (which is the trust’s weighted average cost of debt). 
  • We estimate that the acquisition could be completed by 2Q18, which could provide a 6-8% accretion to FY18F-19F DPU. 
  • In addition, we project gearing to hike up to 40.5% in FY18F (3Q17: 31.1%).


… and higher organic growth 

  • As we expect FEHT's Singapore's hotels’ occupancy to remain in the high-80%, we project a 5% yoy rise in average room rate (ARR) and a corresponding 5% improvement in revenue per available room (RevPAR) for FY18F. 
  • We expect 7% yoy increase in FY19F RevPAR, driven by a 5% rise in ARR and 2%-pts yoy increase in occupancy. 
  • We note that FY19F ARR of S$169 would still be 12% lower than the peak ARR of S$192 FEHT achieved in FY13, suggesting room for upside (especially in the event of a supply squeeze).


Serviced residences (SRs) to stabilise 

  • For FY18F, we project a 4% yoy recovery in revenue per available unit (RevPAU), after a 9% drop in FY17F. 
  • Hougang SR lost a corporate contract in 1Q17, but has shown marked qoq improvement since then. Nonetheless, we expect recovery for SRs to be relatively gradual vs. hotels. 
  • In addition, we expect rental income from commercial premises to stabilise at c.S$23m p.a.


Upgrade to Add with higher TP of S$0.84 

  • Incorporating the potential acquisition of Oasia Hotel Downtown and higher growth from FEHT’s hotel portfolio, we raise our FY18F-19F DPU by 7.9-11.3%. We trim our FY17F DPU by 0.1% as we further decrease SRs’ contributions. 
  • Our DDM-based TP is also bumped up with higher LTG of 2.5% (previously 2%). 
  • Our TP of S$0.84 implies 5.7% FY19F yield and 0.94x current P/BV.


Key risks 

  • Downside risks to our call include slower-than-expected recovery in the Singapore market and unfavourable acquisitions.







LOCK Mun Yee CIMB Research | YEO Zhi Bin CIMB Research | http://research.itradecimb.com/ 2018-01-02
CIMB Research SGX Stock Analyst Report ADD Upgrade HOLD 0.84 Up 0.690



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