Far East Hospitality Trust - Maybank Kim Eng 2019-04-25: Slow Start; Recovery Underway


Far East Hospitality Trust - Slow Start; Recovery Underway

Slight miss on DPU, maintain forecasts

  • FAR EAST HOSPITALITY TRUST (SGX:Q5T)’s 1Q19 DPU of SGD0.91cts, down 3.2% y-o-y, was weaker-than-expected due to a slower-than-anticipated RevPAR recovery, on the back of low corporate demand.
  • Fundamentals remain sound, and we have kept our forecasts and DDM-based SGD0.80 Target Price (COE: 7.5%, LTG: 2.0%) unchanged.
  • We believe a 5-6% recovery in hotel RevPARs will be backed by a tightening supply outlook, which will anchor a 6% DPU CAGR in FY19-20E. We continue to see upside potential from Far East Hospitality Trust's higher Singapore RevPAR sensitivity and sponsor’s ROFR pipeline. BUY.

Hotels up on Oasia contribution

  • Far East Hospitality Trust's 1Q19 revenue rose 8.0% y-o-y with NPI up 9.0% y-o-y with contribution from Oasia Hotel Downtown since Apr 2018.
  • Hotel RevPAR increased marginally on stable occupancy; excluding Oasia Downtown, RevPAR would have declined 3.0% y-o-y on softer corporate demand against a slow MICE calendar.
  • RevPAU for serviced residences (SRs) was flat, as stronger demand from finance, services, and FMCG sectors lifted ADRs despite the y-o-y dip in occupancy (from 81.3% to 80.2%).

Easing supply strengthens sector recovery

  • We expect RevPAR growth to be strengthened by easing supply with new hotel rooms expected to slow to a 1.5% CAGR in 2018-21E from 5.1% in 2014-17. This will be further supported by the completion of renovation works and rebranding efforts at Far East Hospitality Trust's Orchard Rendezvous hotel where RevPAR growth is expected to be supported by higher corporate demand contribution.
  • We maintain our forecast RevPAR growth of 5-6% in 2019- 20E, on stronger volume growth and a pick-up in yields.

Scaling up of sponsor’s assets; DPU levers

  • We see medium-term DPU growth levers from its sponsor’s ROFR pipeline of 1,767 rooms as the properties scale up. They include Far East Hospitality Trust's sponsor’s remaining interests in three Sentosa hotels – The Village (at 606 rooms), Outpost (193), and Barracks (40) - and Oasia West Residences, a 116-room SR. The first two opened in Apr 2019, and were at near full capacity at the recent Good Friday weekend, according to management.

Chua Su Tye Maybank Kim Eng Research | https://www.maybank-ke.com.sg/ 2019-04-25
SGX Stock Analyst Report BUY MAINTAIN BUY 0.800 SAME 0.800