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

FAR EAST HOSPITALITY TRUST (SGX:Q5T) | SGinvestors.io FAR EAST HOSPITALITY TRUST (SGX:Q5T)

Far East Hospitality Trust - Further Room For Growth


In line; best leveraged to SG hospitality recovery

  • 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%).




Hotels key driver on track

  • 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.


Sentosa hotels to ramp up; B/S stretched for now

  • 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.


Swing Factors


Upside

  • 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.

Downside

  • 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



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