Far East Hospitality Trust - OCBC Investment 2018-08-13: Too Far South From Our Fair Value

Far East Hospitality Trust - OCBC Investment Research 2018-08-13: Too Far South From Our Fair Value FAR EAST HOSPITALITY TRUST SGX:Q5T

Far East Hospitality Trust - Too Far South From Our Fair Value

  • Down 10.1% since downgrade.
  • Largely unaffected by CCCS issue.
  • Positive DPU outlook remains!

Down 10.1% since our downgrade

Expect minimal to no impact from CCCS issue

  • We identify a recent announcement by the Competition and Consumer Commission of Singapore (CCCS) as one of the reasons for the unit price weakness.
  • On 2 Aug, CCCS issued a Proposed Infringement Decision (PID) against the business owners/operators of four hotels including Far East Hospitality Trust (FEHT)’s Village Hotel Changi, for exchanging sensitive corporate customer information which could reduce the competitive pressure on contract terms for hotel accommodation. The PID named the master lessee of Village Hotel Changi as well as the operator appointed by the master lessee of the hotel. FEHT has since clarified that neither the Trustee nor the REIT Manager nor the REIT itself has been named by the PID.
  • We note that there may be slight reputational implications stemming from the alleged infringement by the master lessee and the operator, but we expect the impact on FEHT to be minor at most. In short, we expect FEHT to be largely unaffected by CCCS’s PID, if at all.

~ SGinvestors.io ~ Where SG investors share

In addition, 2Q results were solid and positive outlook remains

  • Recall that Far East Hospitality Trust (FEHT) posted a decent set of 2Q results with DPU growing 4.1% YoY to 1.01 S cents, and hotel RevPAR growing an estimated ~3-4% y-o-y (excluding Oasia Hotel Downtown).
  • In comparison, 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. We believe FEHT still has room to post positive RevPAR growth against its low base last year.

Unit price correction is overdone!

  • We believe the unit price correction is overdone and see value at 10 Aug’s close. We maintain our forecasts and fair value of S$0.69.
  • Far East Hospitality Trust is trading at a 6.8% FY18F yield as at 10 Aug’s close, which is slightly above its 5 year average. We believe this presents an attractive opportunity for investors given that FEHT has been suffering from an operational decline for the bulk of the past five years and has only recently started its RevPAR recovery.
  • Far East Hospitality Trust (FEHT) remains our top pick amongst hospitality S-REITs under our coverage. Upgrade from Hold to BUY.

Deborah Ong OCBC Investment Research | https://www.iocbc.com/ 2018-08-13
SGX Stock Analyst Report BUY Upgrade HOLD 0.690 Same 0.690