Far East Hospitality Trust - CIMB Research 2018-02-15: 4Q17 Red Print To Be A Thing Of The Past

Far East Hospitality Trust - CIMB Research 2018-02-15: 4Q17 Red Print To Be A Thing Of The Past FAR EAST HOSPITALITY TRUST Q5T.SI

Far East Hospitality Trust - 4Q17 Red Print To Be A Thing Of The Past

  • Far East Hospitality Trust's FY17 DPU of 3.90 Scts (-9.9% y-o-y) was slightly below consensus and our expectations, at 96% of our full-year forecast. 4Q17 DPU of 0.97Scts was at 24%.
  • The negative variance for the quarter came from slightly lower NPI and higher unit base due to the distribution reinvestment plan (DRP) in 1H17.
  • We believe that FEHT’s red print would be a thing of the past. We forecast 9% y-o-y recovery for its FY18F DPU, which should underpin unit price performance.
  • The rebound would be led by recovery in Singapore hotel market, stabilisation in its SR and inorganic contribution from Oasia Hotel Downtown come 2QFY18F.
  • Reiterate ADD with a lower DDM-based Target Price of S$0.79.



4Q17: Red print to be a thing of the past 

  • Far East Hospitality Trust (FEHT)'s 4Q17 DPU fell 13.4% y-o-y to 0.97Scts due to lower contributions from hotels and serviced residences (SR) as well as higher unit base from the DRP in 1H17. However, we believe that the red print would be a thing of the past. 
  • FEHT’s hotels would benefit from the recovery in the Singapore market while its Serviced Residence should rebound after the big drop in FY17. Plus, there would be inorganic contribution from Oasia Hotel Downtown come 2Q18F.


Hotel 4Q17 RevPAR down 2.4% y-o-y; 5.5% recovery for FY18F 

  • 4Q17 RevPAR decreased 2.4% y-o-y as average occupancy declined 1.1% pts to 85.4% and average room rate (ARR) decreased 1.1% y-o-y. ARR was lower partly due to higher leisure contribution (66% in 4Q17 vs. 63% in 4Q16). Additionally, FEHT’s properties were more affected by increased supply in the Orchard Road and Novena micro-markets.
  • FY17 RevPAR declined 1.9% y-o-y to S$136. Nonetheless, the manager is encouraged by YTD hotels’ performance; we bake in 5.5% recovery for FY18F RevPAR.


Serviced Residence 4Q17 RevPAU down 5.5% y-o-y; 2.5% recovery for FY18F 

  • 4Q17 RevPAU decreased 5.5% y-o-y as average occupancy declined 1.6% pts to 78.2% and ARR fell 3.5% y-o-y. FY17 RevPAU declined 7.1% y-o-y to S$175. 
  • We expect SR’s occupancy to stabilise in FY18F, and expect 2.5% recovery after the big drop in FY17.
  • Also, we note that FEHT registered S$41.5m devaluation losses on its investment properties in 4Q17 (mainly skewed towards SR as lower RevPAU was inputted; cap rate for hotels firmed by c.25bp).


Capital management 

  • Owing to devaluation losses, gearing increased to 34.4% (9M17: 32.1%). Post-acquisition of Oasia Hotel Downtown (we expect Apr 2018), we estimate that gearing would increase to c.39%. We believe that FEHT would turn on DRP then to alleviate gearing. Also, we note that FEHT has a relatively tall tower of refinancing due in FY18F (S$249m). 
  • That said, it has received commitments to refinance around half the debts due for maturity. Post-refinancing, we expect all-in cost of debt to maintain at 2.5% p.a.


AEI for Orchard Parade Hotel to be completed in 2Q18 

  • The refurbishment of guest rooms and club lounge at Orchard Parade Hotel is on track for completion in 2Q18. 
  • We understand that asset enhancement initiatives (AEI) for other properties are in the planning stage; we expect no further major works this year. This allows FEHT’s entire room inventory to benefit from the rising Singapore market.


Reiterate ADD with lower DDM-based TP 

  • We decrease our FY18F-19F DPU by 2.4-3.0% as we reduce our operating margin assumptions for both its hotels and SR. 
  • Our DDM-based Target Price is accordingly lowered to S$0.79. We believe FEHT’s red print would be a thing of the past, and forecast 9% y-o-y recovery in its FY18F DPU (which should underpin unit price performance). 
  • Reiterate ADD. 
  • Downside risks include slower-than-expected recovery in Singapore market.




YEO Zhi Bin CIMB Research | LOCK Mun Yee CIMB Research | http://research.itradecimb.com/ 2018-02-15
CIMB Research SGX Stock Analyst Report ADD Maintain ADD 0.79 Down 0.840



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