Far East Hospitality Trust - OCBC Investment 2018-04-26: Far From Over – The Recovery Has Just Begun!

Far East Hospitality Trust - OCBC Investment 2018-04-26: Far From Over – The Recovery Has Just Begun! FAR EAST HOSPITALITY TRUST Q5T.SI

Far East Hospitality Trust - Far From Over – The Recovery Has Just Begun!

  • Expect more RevPAR growth ahead.
  • 6.2% FY18F yield as at 25 Apr close.
  • Maintain BUY.

More good things to come for hotels

  • Far East Hospitality Trust’s (FEHT) 1Q18 revenue increased 3.8% y-o-y to S$28.7m, while distributable income correspondingly increased 4.2% to S$17.6m. DPU increased 1.1% to 0.94 S cents or 21% of our initial full-year forecast which we deem to be within expectations. 
  • 1Q18 RevPAR for FEHT’s hotels increased 3.3% y-o-y on the back of a 1.5 ppt y-o-y increase in average occupancy and a 1.6% y-o-y increase in ADR. This was achieved despite ongoing room renovations at Orchard Parade Hotel, supported by the pick-up in overall demand as well as some uplift from the biennial Singapore Airshow in Feb. 
  • In addition, given that much of last year’s hotel room supply injection was backend loaded, we see RevPAR growth picking up further into this year.

RevPAU up 7.6% y-o-y, but off a low base

  • Far East Hospitality Trust’s 1Q18 RevPAU for serviced residences (SR) increased 7.6% y-o-y, with occupancy increasing 10.1 ppt y-o-y to 81.3% and ADR dropping 5.8% y-o-y to S$214. This strong y-o-y improvement in RevPAU was expected – recall that FEHT’s SR portfolio had previously suffered a 13.1 ppt drop in occupancy to 71.2% in 1Q17. 
  • While there was an increase in group bookings, management noted the corporate demand remained subdued, a sentiment that was echoed by Ascott Residence Trust’s 7% y-o-y decline in 1Q18 RevPAU. While concerning, to put this issue into context, FEHT’s SR portfolio contributed 12.3% of total revenue in 1Q18 with hotels contributing 66.3% and retail/office revenue making up the remainder.

Look forward to contributions from Oasia Hotel Downtown

  • After adjustments, our fair value decreases slightly from S$0.75 to S$0.735
  • We are more cognizant of the soft corporate demand situation faced by FEHT’s serviced residences as well as the negative rental reversions at the REIT’s commercial properties. Nonetheless, we see value for investors as at 26 Apr’s close. 
  • For the rest of the year, we look forward to a full inventory from Orchard Parade Hotel and contributions from Oasia Hotel Downtown which was acquired on 2 Apr 2018. In addition, we expect the contributions from FEHT’s stake into the Sentosa project to bear fruit in 2019. 
  • As at 25 Apr’s close, FEHT is trading at a FY18F yield of 6.2%. We reiterate BUY on FEHT.

Deborah Ong OCBC Investment | http://www.iocbc.com/ 2018-04-26
SGX Stock Analyst Report BUY Maintain BUY 0.735 Down 0.750