Far East Hospitality Trust - CGS-CIMB Research 2019-07-24: Expecting Another Slow Quarter In 2Q


Far East Hospitality Trust - Expecting Another Slow Quarter In 2Q

  • We project 2Q results to still be weak due to a high base (more events last year), weak tourist arrivals and higher finance cost.
  • The newly opened Village Hotel and The Outpost Hotel are performing well.
  • Maintain ADD due to its attractive valuations

Weak 2Q19F

  • To recap, FAR EAST HOSPITALITY TRUST (SGX:Q5T)’s 1QFY19 revenue rose 8% while net property income (NPI) rose 9%, boosted by additional contribution from Oasia Hotel Downtown. Hotel revenue per available room (RevPAR) was relatively flat at +0.7% y-o-y while serviced residence revenue per available unit (RevPAU) was flat y-o-y at S$174.
  • We do not expect strong RevPAR growth in 2QFY19F given the high base effect of last year due to the presence of biannual Food & Hotel Asia event in Apr. Far East Hospitality Trust also benefited from the Trump-Kim Summit as its Orchard Rendezvous Hotel and Rendezvous Hotel & Gallery received group bookings from journalists.
  • In addition, the acquisition of Oasia Hotel Downtown was completed in Apr 2018. Hence 2Q y-o-y growth will be more comparable.
  • As for its serviced residence, we expect flat RevPAU y-o-y as the REIT continues to adopt a volume strategy by penetrating further into the leisure segment.
  • We would also see higher borrowing cost on a y-o-y basis due to the acquisition of Oasia Hotel Downtown.

New hotels at Sentosa performing well

  • Far East Hospitality Trust's 30%-owned Sentosa were officially opened in hotels are The Barrack Hotel achieve temporary occupation permit (TOP) in 3Q19 in 4Q19 (Oct/Nov).
  • Although the opening of these hotels would boost Far East Hospitality Trust’s earnings, it will not translate into DPU as long as the cash is kept within the JV.

Maintain ADD

  • We cut our Far East Hospitality Trust by 5-7%, and reduce our call on Far East Hospitality Trust remains in view of its attractive valuations and stable performance.
  • Potential re-rating catalysts include stronger-than-expected RevPAR/ RevPAU and its JV hotels in Sentosa declaring dividends.
  • Downside risks to our call include increase in pre-opening expenses from its hotels in Sentosa and worse-than-expected RevPAR/RevPAU performances.

EING Kar Mei CFA CGS-CIMB Research | LOCK Mun Yee CGS-CIMB Research | https://research.itradecimb.com/ 2019-07-24
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