Far East Hospitality Trust - CGS-CIMB Research 2019-02-13: An Encouraging Finale To 2018


Far East Hospitality Trust - An Encouraging Finale To 2018

  • Far East Hospitality Trust's FY18 DPU of 4 Scts (+2.6% y-o-y) was in line with our expectations.
  • FY18 NPI was up 10.5% y-o-y driven by acquisitions, better performance from existing hotels and slight improvement in the serviced residences segment.
  • Maintain ADD on Far East Hospitality Trust with an unchanged DDM-based Target Price.

FY18 DPU increased 2.6% y-o-y

  • FAR EAST HOSPITALITY TRUST (SGX:Q5T)’s FY18 revenue rose 9.5% while NPI was up 10.3% y-o-y, mainly contributed by
    1. the addition of Oasia Hotel Downtown for which the acquisition was completed in Apr 2018, and
    2. better performance from the existing hotels.
  • This offset the softness in the commercial segment.
  • Serviced residences’ (SR) revenue was flat y-o-y.
  • Far East Hospitality Trust's FY18 DPU, which was in line with expectations at 98% of our full-year estimate, improved at a smaller rate of 2.6% y-o-y to 4.0 Scts, mainly due to higher interest expense.

Strong FY18 RevPAR of 6.2%

  • FY18 RevPAR improved 6.2% y-o-y on the back of an increase in average occupancy (+1.5% pts to 89.1%) and average daily rate (ADR) (+4.4% to S$162).
  • Far East Hospitality Trust saw strong RevPAR throughout the year, with the strongest growth seen in 4QFY18 at 7.5% y-o-y, driven by the completion of renovation of Orchard Parade Hotel, which has now been rebranded Orchard Rendezvous Hotel, and commanding higher room rates as well as enjoying stronger demand. Excluding the effects of Oasia Downtown, FY18 RevPAR would have been 3.5%, beating the industry year-to-Nov y-o-y RevPAR growth of 2.3%.

Serviced residences segment turnaround

  • Far East Hospitality Trust's serviced residences business showed strong y-o-y RevPAU growth of 7.5% in 4QFY18 which pushed full-year RevPAU growth to positive territory (+0.9% y-o-y), driven by higher demand from leisure as the trust penetrated online bookings. While average daily rate continued to decline as the trust focused on filling up occupancy, we saw strong improvements in average daily rate in 4QFY18 (-0.5% y-o-y in 4QFY18 versus -5% in 9MFY18).
  • Management noted that RevPAU growth in 4Q was exceptionally strong and may not be sustainable.

Looking forward to a better 2019

  • Management remains upbeat on the outlook of its hotel business going forward, driven by stronger tourist arrivals and lower supply of hotels in 2019.
  • As for the Serviced residences business, with the higher occupancy rate, management hopes that RevPAU will be better than the reported growth of +0.9% in FY18.
  • The trust plans to re-introduce a dividend reinvestment program in 1Q19 to reduce gearing which was at 40.1% as at Dec 2018.

Maintain ADD

  • We maintain our DDM-based Target Price and ADD call on Far East Hospitality Trust. Refer to the PDF report attached for S-REITs peer comparison table. 
  • Upside risks include accretive acquisitions while downside risks include worse-than-expected performances from the hotel and serviced residence segments.

EING Kar Mei CFA CGS-CIMB Research | LOCK Mun Yee CGS-CIMB Research | https://research.itradecimb.com/ 2019-02-13
SGX Stock Analyst Report ADD MAINTAIN ADD 0.68 DOWN 0.690