Far East Hospitality Trust - OCBC Investment 2017-08-07: Hotel RevPAR Remains Resilient

FAR EAST HOSPITALITY TRUST Q5T.SI

Far East Hospitality Trust - Hotel RevPAR Remains Resilient

Far East Hospitality Trust’s (FEHT) 2Q17 results reached the higher end of our expectations.
2Q17 DPU dropped 4.0% YoY to 0.97 S cents or 25.4% of our initial full-year forecast. 1H17 DPU dropped 9.1% YoY to 1.90 S cents or 49.8% of our full-year forecast.
As a comparison, 1H15 and 1H16 DPU made up ~48% each of their respective full-year DPUs, though we do expect slightly greater downward pressure for hotel RevPARs in 2H17 given that most of the room supply injection in 2017 is back-end loaded.

2Q17 Hotel RevPAR dropped 1.3% to S$134, with the REIT manager noting that demand for hotel accommodation picked up QoQ, although the increased supply of hotel rooms and soft corporate business put a damper on room rates.
Serviced Residences (SR) RevPAU declined 5.7% YoY to S$177, mainly due to a 4.5 ppt YoY drop in occupancy to 81.5%. Nonetheless, we note that SR improved 10.3 ppt QoQ from 71.2% in 1Q17.
In relation to the recent reduction in minimum stay duration for private properties from six to three months, we estimate that 10- 20% of the stays at FEHT’s SRs are 3-6 months while a greater proportion of the stays are of a 1-3 month duration. In the short-term, as homeowners take time to adjust to the regulation, we believe FEHT’s SRs will remain largely unaffected.
Nonetheless, there may be a greater impact 2-3 years down the line should corporates be willing to offer employees more flexibility in choosing their own housing arrangements.

We increase our nominal growth rate of dividends in mature state from 1% to 1.5%. After adjustments, our fair value increases from S$0.60 to S$0.66.
While FEHT appears cheap with its units trading at a ~0.75x PB, we note that the NPI yield on its investment property portfolio (as valued end-FY16) is relatively low at 4.0%.
Against last Friday’s closing price, FEHT is trading at a 5.9% FY17F yield and 6.3% FY18F yield. FEHT’s gearing ratio as at 30 Jun 2017 is 32.8%. Maintain HOLD.

Deborah Ong OCBC Investment | http://www.ocbcresearch.com/ 2017-08-07

OCBC Investment SGX Stock Analyst Report HOLD Maintain HOLD 0.660 Up 0.600