Far East Hospitality Trust - OCBC Investment 2018-08-01: So Far So Good

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FAR EAST HOSPITALITY TRUST SGX:Q5T

Far East Hospitality Trust - So Far So Good

• RevPAR growth beats peers!
• Still our favourite Hospitality REIT.
• Fair value increases to S$0.69.

2Q DPU up 4.1% y-o-y

• Far East Hospitality Trust (FEHT) posted a solid set 2Q18 results. 2Q18 revenue increased 10.2% y-o-y to S$28.5m, mainly due to Oasia Hotel Downtown’s contribution as well as higher master lease rental from the hotels.
• Correspondingly, NPI increased 11.2% y-o-y to S$25.7m. 2Q18 DPU increased 4.1% y-o-y to 1.01 S cents or 24.4% of our initial full-year forecast, which we consider within our expectations.

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RevPAR up ~3 to 4% y-o-y after stripping out OHD

• Recall that in our latest report on 30 Jul, we expected softer 2Q operational results from FEHT given the earlier results releases by peers. Recall that OUE Hospitality Trust and CDL Hospitality Trusts posted -0.5% (for Mandarin Orchard Singapore) and -0.9% declines (for SG hotels) in their 2Q hotel RevPARs, respectively. FEHT surprised us with a surprisingly strong 6.9% y-o-y growth in 2Q RevPAR to S$143, on the back of improvements in both occupancy and ADRs. 
• If we strip out the Oasia Hotel Downtown’s performance, we believe FEHT’s 2Q RevPAR growth came in at +3% to +4% y-o-y. 
• Management shared that improvements in revenue management helped them to manage the late bookings better as they deliberately held onto inventory to sell at higher prices. In addition, the Trump-Kim summit was a mixed- bag for FEHT’s portfolio, with congregations of Japanese and British journalists staying at two of their hotels. 
• Regarding FEHT’s service residences, 2Q RevPAU dropped 4.5% y-o-y to S$168, as corporate employee relocation activities remained soft. We expect serviced residences to continue to post y-o-y RevPAU declines further into 2018.

Still our favourite Hospitality REIT

• We had downgraded FEHT from Buy to Hold on 30 Jul as we
  1. expected a weaker set of 2Q results (which did not happen),
  2. pushed back our expectations from a strong SG recovery and
  3. increased our cost of equity as a consequence of the rising interest rate environment. 
• Post this quarter’s results, we believe FEHT still has room to post positive RevPAR growth against its low base last year. 
• After adjustments, our FY18F DPU forecast has increased from 4.1 S cents to 4.2 S cents and our fair value increases from S$0.675 to S$0.69. 
• FEHT is currently trading at a 6.1% FY18F yield as at 31 Jul’s close. 
• Maintain HOLD.

Wong Teck Ching Andy CFA OCBC Investment Research | https://www.iocbc.com/ 2018-08-01

SGX Stock Analyst Report HOLD Maintain HOLD 0.690 Up 0.675