Far East Hospitality Trust - Maybank Kim Eng 2019-07-30: Slow Quarter, Stronger 2H


Far East Hospitality Trust - Slow Quarter, Stronger 2H

In line; adjusting DPUs for slower recovery

  • FAR EAST HOSPITALITY TRUST (SGX:Q5T)’s 2Q19 DPU of SGD0.91cts, flat q-o-q and down 9.9% y-o-y, was in line with our expectations with 6M19 at 42% of our FY19E forecast.
  • That said, we lower DPUs by 2-3% for a slower 2-5% (from 3-5%) 2019-20E RevPAR recovery. Still, we look towards a stronger 2H with a pick-up in demand.
  • Our DDM-based SGD0.80 Target Price (COE: 7.4%, LTG: 2.0%) is unchanged (risk-free rate cut to 2.5%).
  • We believe a hotel RevPAR recovery will be backed by tightening supply and continue to see upside potential from its higher Singapore RevPAR sensitivity and sponsor’s ROFR pipeline.
  • BUY.

Hotels weak, SR fundamentals looking up

  • Far East Hospitality Trust's 2Q19 revenue and NPI dipped 2.1% and 2.4% y-o-y with lower contributions from its hotel master leases. Hotel occupancy declined y-o-y and q-o-q to 88.1%, which resulted in a 4.5% y-o-y decrease in RevPAR. This was on the back of weak corporate demand amid a slower 2019 MICE calendar.
  • RevPAU for its serviced residences (SRs) increased 3.0% y-o-y, despite a drop in occupancy from 83.5% to 81.9%. This was driven by growth in shorter-stay bookings at 5% y-o-y higher ADRs, attributed to stronger demand from the service and FMCG sectors.

Sector recovery helped by easing supply

  • We expect RevPAR growth to be strengthened by easing supply. New hotel rooms are expected to slow to a 1.3% CAGR in 2018-21E from 5.1% in 2014-17. The recovery should be further supported by completion of renovation and rebranding efforts at its Orchard Rendezvous hotel where RevPAR growth is expected to be supported by higher corporate demand from 2H.
  • We now forecast RevPAR growth of 2-5% for 2019-20E, down from 3-5%. This would be led by stronger volume growth and a pick-up in yields.

Sponsor’s ROFR assets offer DPU growth levers

  • We see medium-term DPU growth levers from its sponsor’s ROFR pipeline of 1,767 rooms. They include its sponsor’s remaining interests in:
    1. three Sentosa hotels – The Village with 606 rooms, Outpost with 193 and Barracks with 40. The first is tracking in line with its 80+% occupancy and potentially higher ADRs after its promotional period; and
    2. the 116-room Oasia West Residences, whose acquisition could close this year.

Chua Su Tye Maybank Kim Eng Research | https://www.maybank-ke.com.sg/ 2019-07-30
SGX Stock Analyst Report BUY MAINTAIN BUY 0.800 SAME 0.800