Far East Hospitality Trust - CIMB Research 2018-04-26: 1Q18 Encouraging Read-Through For Peers

Far East Hospitality Trust - CIMB Research 2018-04-26: 1Q18 Encouraging Read-through For Peers FAR EAST HOSPITALITY TRUST Q5T.SI

Far East Hospitality Trust - 1Q18 Encouraging Read-through For Peers

  • Far East Hospitality Trust (FEHT)'s 1Q18 DPU of 0.94 Scts (+1.1% y-o-y) was slightly above consensus expectations but in line with our expectation, at 22% of our full-year forecast.
  • We expect stronger quarters ahead with inorganic contribution from Oasia Hotel Downtown (acquisition completed on 2 Apr 2018).
  • Hotels’ RevPAR improved 3.3% y-o-y and we believe that recovery for hotels is firmly on its way. As expected, SRs’ RevPAU rebounded 7.6% y-o-y due to low-base effect.
  • A firm hotel recovery, full-room inventory, ability to start pricing up rooms and new contribution from acquisition leads us to project 8.9% y-o-y growth for FY18F DPU.
  • Maintain ADD with unchanged DDM-based Target Price.

1Q18: encouraging read through for peers

  • Far East Hospitality Trust (FEHT)'s 1Q18 DPU improved 1.1% y-o-y on higher contributions from hotels and serviced residences (SRs). This was partially offset by lower revenue from commercial premises (- 3.9% y-o-y). 
  • The results validate our view that recovery for hotels is firmly on its way and is an encouraging read-through for the Singapore-focused hospitality REITs.

Hotels’ RevPAR improved 3.3% y-o-y

  • RevPAR improved 3.3% y-o-y on the back of increase in average occupancy (+1.5% pt to 89.6%) an +1.6% y-o-y in average daily rate (ADR). With the exception of Orchard Parade (was undergoing renovation), all hotels registered y-o-y improvements in RevPARs. 
  • With demand expected to stay healthy (Singapore Tourism Board forecasts 1-4% growth in visitor arrivals; 2018 would see return of biennial events) and new supply at 1.2% of room stock, we continue to project 7%/5% y-o-y improvements in industry RevPAR/FEHT.

SRs’ RevPAU rebounded 7.6% y-o-y

  • Given that FEHT managed to find replacement contracts to backfill one of the departed corporates (leading to a 10.1% pt y-o-y rise in occupancy to 81.3%), RevPAU increased 7.6% y-o-y, partially offset by a 5.8% decrease in ADR. 
  • With corporate demand remaining soft, we expect Service Residences (SRs) recovery to lag hotel. For FY18F, we forecast 2.5% y-o-y improvement in RevPAU as SRs recover from a low-base. 
  • FEHT will focus on raising occupancy for SRs during the year.

Commercial premises continue to grind down

  • Revenue from commercial premises declined 3.9% y-o-y on lower rental rates while occupancy hovered at c.90%. We understand that FEHT would focus on increasing utilisation at office suites at Orchard Parade and retail spaces at Rendezvous Gallery.

The flip side to URA’s proposal for short-term stay

  • While any form of supply is a negative, the manager is not unduly worried about Urban Redevelopment Authority’s (URA) proposal for short-term stay given high thresholds such as the 80% consent and annual 90-day rental cap. On the flip side, the manager could lobby for the same treatment for its SRs. 
  • Currently, the minimum stay for SRs is seven days. Additionally, its SRs focus on corporate business; it is also unlikely that they would be adversely affected by short-term home stays given their locations.

Maintain ADD

  • We leave our estimates/Target Price (S$0.79) unchanged and reiterate ADD on FEHT. 
  • Coupled with the recovery in the industry, renovation at Orchard Parade has been completed and FEHT can now operate with a full inventory. In addition, FEHT could start to price up its hotel rooms as occupancy is full. New contributions from Oasia Hotel downtown would also come in 2Q18. 
  • Altogether, we forecast an 8.9% y-o-y growth in FY18F DPU. 
  • Slight drags could come from SRs and the commercial premises.

YEO Zhi Bin CIMB Research | LOCK Mun Yee CIMB Research | http://research.itradecimb.com/ 2018-04-26
SGX Stock Analyst Report ADD Maintain ADD 0.790 Same 0.790