Far East Hospitality Trust - OCBC Investment 2018-10-31: Attracting Tourists From Near And Far


Far East Hospitality Trust - Attracting Tourists From Near And Far

  • Mid-Tier hotels benefit from strong leisure demand.
  • RevPAR growth story still intact.
  • 6.8% FY18F yield as at 30 Oct close.

DPU up +2% in 3Q18

  • Far East Hospitality Trust (FEHT) posted a solid set of 3Q18 results.
  • Gross Revenue increased 11.1% y-o-y to S$30.5m, due to an increase in hotel master lease rental and contribution from Oasia Hotel Downtown. NPI increased 11.8% y-o-y to S$27.7m.
  • Due to increased interest costs which were mainly due to the Oasia acquisition, 3Q18 DPU increased by a smaller +1.9% y-o-y to 1.05 S cents or 25% of our initial full-year forecast.

Hotel RevPAR continues uptrend

  • 3Q18 hotel RevPAR increased 6.6% to S$152, mainly due to a 5.1% increase in ADR. We note that this RevPAR growth figure may have been skewed by the addition of Oasia Hotel Downtown to the portfolio and the improvement in performance by the recently renovated and rebranded Orchard Rendezvous Hotel (formerly Orchard Parade Hotel). Nonetheless, management noted an uptick in overall market demand on the broader front and generally strong leisure demand.
  • We estimate that the broader portfolio clocked ~3% RevPAR growth y-o-y during the quarter. Meanwhile, services residences RevPAU decreased 5.4% y-o-y to S$186.

Mid-tier focused portfolio well-positioned in current climate

  • Going forward, we expect the current pace of RevPAR growth (i.e. +3% y-o-y for the wider hotel portfolio) to continue in the last quarter, before picking up speed in 2019.
  • Feedback from the management suggests that Mid-tier hotels have outperformed Upscale hotels within their portfolio YTD – we see Mid-Tier hotels as being better positioned to benefit from the strong leisure demand amidst a relatively tepid corporate environment. For Serviced Residences, we expect the softness to continue for the next few quarters and a flattish performance next year given the low base in 2018. We are somewhat concerned with the relatively higher gearing of 40.4% as at 30 Sept 2018 as it heightens the prospect of equity fundraising.
  • That said, we believe acquisitions are not a priority for the management in the medium term (till end of 2019) given that the Sentosa project is coming on-stream next year.
  • Since our upgrade from Hold to BUY on 13 Aug (see report: Far East Hospitality Trust - Too Far South From Our Fair Value) to 30 Oct’s close, Far East Hospitality Trust has posted a -5% total return, outperforming the STI by 4 ppt. After adjustments, our fair value dips from S$0.69 to S$0.675. Maintain BUY.

Deborah Ong OCBC Investment Research | https://www.iocbc.com/ 2018-10-31
SGX Stock Analyst Report BUY MAINTAIN BUY 0.675 DOWN 0.690