Far East Hospitality Trust - CIMB Research 2017-11-02: Light At The End Of The Tunnel; Acquisition In Sight

Far East Hospitality Trust - CIMB Research 2017-11-02: Light At The End Of The Tunnel; Acquisition In Sight FAR EAST HOSPITALITY TRUST Q5T.SI

Far East Hospitality Trust - Light At The End Of The Tunnel; Acquisition In Sight

  • Far East Hospitality Trust (FEHT) 9M17 DPU of 2.93 Scts (-8.7% yoy) was broadly in line with consensus and our expectation, at 72% of our full-year forecast. 3Q17 DPU of 1.03 Scts was at 25%.
  • 3Q17 hotel RevPAR inched up 0.4% yoy. We believe that due to low base-effect, there could be continued improvements in 4Q17.
  • With supply tapering in 2018, we expect 3% yoy improvement in RevPAR in FY18F.
  • For SR, we expect a yoy improvement in FY18F with stabilised occupancy.
  • We keep our Hold call with a higher DDM-based TP as we roll-forward to FY18.
  • However, investors with a strong view that an accretive-acquisition could occur soon could add the stock before the fact.



3Q17: Light at the end of the tunnel 

  • While the headline 3Q17 DPU of 1.03 Scts (-8% yoy) was not exactly impressive, we were encouraged by underlying trends. 
  • We believe that FEHT is now seeing light at the end of the tunnel. 3Q17 hotel RevPAR inched up by 0.4% yoy, the first uptick FEHT has seen in this down-cycle. 
  • As for other P&L items, we note that other trusts expenses were slightly elevated in the quarter, and expect it to normalise in 4Q17. DPU was also slightly affected by the introduction of DRP (distribution reinvestment plan) in 1Q17.


Uptick in hotel RevPAR (revenue per available room) 

  • 3Q17 hotel RevPAR inched up 0.4% yoy to S$143 (9M17 fell 1.8% yoy). The improvement came from higher occupancy (+1% pt yoy to 89.4%) and flattish average daily rate (ADR). 
  • Qoq, FEHT saw better contribution from the corporate segment. Among the portfolio, the three “Village” hotels fared better yoy. Orchard Parade was slightly affected by room refurbishment. The first phase of room refurbishment has been completed, and the second phase is targeted to be completed by 1Q18.


Occupancy in Serviced Residences (SR) stabilises 

  • 3Q17 serviced residences (SR) RevPAU (revenue per available unit) declined 3.4% yoy on lower occupancy (-1% pt yoy to 89%) and ADR (-2.3% yoy). That said, there has been a marked improvement in performance on a qoq basis, with the occupancy gap that impacted trading in 1H17 closed in the quarter. 
  • In addition, revenue from commercial premises (accounted for 20.3% of 3Q17 revenue) declined 4.5% yoy on lower occupancy and marginal decrease in rental rates. The weakness was within our expectation.


Can improvements be sustained? 

  • Due to backend supply, the consensus view is that sustained improvements in RevPAR would only come in 2H18. Specifically for FEHT, due to low base-effects, we believe that there could be continued improvements in RevPAR in 4Q17. With supply tapering in 2018, we forecast 3% yoy increase in RevPAR in FY18F (driven by ADR increase).
  • Likewise, for SR, we expect an improvement in RevPAU in FY18F, with occupancy stabilising. Hougang SR, which lost a corporate contract in 1H17, has since recovered.


Maintain Hold; acquisition in sight 

  • We keep our forecasts but raise our DDM-based Target Price (to S$0.69) as we roll-forward to FY18. 
  • On an “as-it-is” basis, FEHT remains a Hold. But investors with a strong view that an accretive acquisition of Oasia Hotel Downtown could occur soon could add the stock before the fact. Under a scenario analysis, we had estimated a 4.5-12% accretion to FEHT’s FY18F DPU (1% accretion in DPU could translate into a c.1% increase in TP). 
  • Upside/downside risks stem from Singapore hospitality market and favourable/unfavourable acquisitions.




YEO Zhi Bin CIMB Research | LOCK Mun Yee CIMB Research | http://research.itradecimb.com/ 2017-11-02
CIMB Research SGX Stock Analyst Report HOLD Maintain HOLD 0.690 Up 0.660



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