Far East Hospitality Trust (FEHT) - CGS-CIMB Research 2018-10-03: Our Immediate Term Pick

SGinvestors.io

FAR EAST HOSPITALITY TRUST SGX:Q5T

Far East Hospitality Trust (FEHT) - Our Immediate Term Pick

• We project strong 5.2% DPU growth in 2018F, driven by Oasia Down Town acquisition and recovery in RevPAR.
• We cut our FY18-19 DPU forecasts for Far East Hospitality Trust (FEHT) by 3- 6% to be more in line with industry performance.
• FEHT is our top pick in the immediate term due to stronger growth in 2018F.

Strong RevPAR reported for 1H18

• In line with our expectation, Far East Hospitality Trust (FEHT)’s revenue per available room (RevPAR) has been recovering since 1Q18 after posting a decline in 4Q17. In fact, FEHT has done well in 1H18 with RevPAR growing 5.2% y-o-y.
• While the strong RevPAR was partially driven by the acquisition of Oasia Downtown, completed in Apr 2018, we understand that excluding the acquisition effect, RevPAR growth remained solid at 3% y-o-y. The stronger RevPAR was driven by both higher average daily rate (ADR) and occupancy.

~ SGinvestors.io ~ Where SG investors share

Expect strong 5.2% y-o-y DPU growth in 2018F

• We project 2018F DPU growth of 5.2%, to be driven by
  1. the acquisition of Oasia Downtown,
  2. completion of refurbishment works at Orchard Parade Hotel in 1Q18, and
  3. recovery of the hospitality sector, albeit partially offset by the weaker serviced residence segment which is facing slower demand amid cuts in corporate budgets.

Cuts in forecasts to be more in line with industry performance

• We cut our FY18-19 DPU forecasts by 3-6% after lowering our hotel RevPAR forecast to be more in line with its historical performance vs. industry performance.
• We also reduce our RevPAR forecasts for its serviced residence. Although the segment's occupancy rate has been improving, its ADR has been weak. To further improve the segment’s performance, the trust may reconfigure the bigger units to smaller units.

Our pick in the immediate term

• We recommend buying Far East Hospitality Trust (FEHT) in the next few months as we expect acquisitions and recovery in RevPAR growth to lift 2018F DPU by 5.2%. We believe these upsides are not priced in yet as Far East Hospitality Trust is still trading below its book value and 4-year average. The market is still cautious about the sustainability of its earnings upside.
• However, we expect its RevPAR to remain solid in Jul and Aug, and that it would continue to outperform the industry in 2H18F due to the acquisition of Oasia Downtown as well as the higher average occupancy rate and lower ADR, which provides it more room for improvement.
• Far East Hospitality Trust’s Singapore RevPAR performance had outpaced CDL Hospitality Trusts (SGX:J85)’ in the past three years and its RevPAR growth has been one of the strongest in 1H18. Given its attractive valuation and strong growth, our DDM-based target price (S$0.69) represents total upside of 15%.

EING Kar Mei CFA CGS-CIMB Research | LOCK Mun Yee CGS-CIMB Research | https://research.itradecimb.com/ 2018-10-03

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