Far East Hospitality Trust - Maybank Kim Eng 2018-10-30: Further Room For Growth

FAR EAST HOSPITALITY TRUST (SGX:Q5T)

Far East Hospitality Trust - Further Room For Growth

Far East Hospitality Trust's 3Q18 DPU was up 1.9% y-o-y and 4.0% q-o-q, in line with our estimates.
Our forecasts are unchanged. We see FEHT as providing the only pure exposure to a recovery in Singapore’s hospitality sector. Rising contributions from recently-acquired Oasia Downtown, a 5% y-o-y annual recovery in hotel RevPARs and a ramp-up of three Sentosa properties from 1Q2019 are expected to anchor its strongest 6% DPU CAGR in FY18- 20E.
We see upside potential from its higher Singapore RevPAR sensitivity and sponsor’s ROFR pipeline.
BUY to our DDM-based SGD0.75 Target Price (COE 7.7%, LTG 2.0%).

Far East Hospitality Trust's 3Q18 revenue rose 111% y-o-y/ 70% q-o-q while NPI growth was stronger at +118% y-o-y/ +76% q-o-q. This was driven by y-o-y / q-o-q increases in hotel 90 as RevPAR jumped 66% y-o-y (RevPAR is YTD).
Ex-Oasia Downtown, whose acquisition was rose 3.0% y-o-y. This was in expectations.
Its rebranding of Orchard Rendezvous Orchard Parade support hotel RevPARs after AEI.
Meanwhile, sector has become more balanced and higher for a room.
We estimate that every increase in RevPARs lift FY18-19E DPUs by 0.6-13%. RevPAU growth for residences is muted as employee remain weak, even though bookings finance and sectors are picking Management improvements.

Aggregate leverage was stable at 40.4% following its fully-debt-funded Oasia Downtown purchase.
Balance sheet appears stretched for now, but there should be medium-term DPU growth levers from its sponsor’s ROFR pipeline of 1,767 rooms as the properties scale up. They include its sponsor’s remaining interests in three Sentosa hotels – The Outpost (193 rooms), Village (606) and Barracks (40) - which are awaiting temporary occupational permits, and are on track to open from 1Q2019.

Earlier-than-expected pick-up in corporate demand.
Better-than-anticipated RevPAR.
Accretive acquisitions where cap rates exceed cost of funds, or divestments at low cap rates which unlock asset values.

Sizeable increases in hotel and SR room supply without commensurate growth in demand.
Deterioration in global economy, resulting in declines in RevPARs.
Sharper-than-expected rise in interest rates could increase cost of debt and affect earnings, with higher cost of capital lowering valuations.

Chua Su Tye Maybank Kim Eng Research | https://www.maybank-ke.com.sg/ 2018-10-30

SGX Stock Analyst Report BUY MAINTAIN BUY 0.750 SAME 0.750