Far East Hospitality Trust - OCBC Investment 2019-10-31: Improvement In Hotels Segment

FAR EAST HOSPITALITY TRUST (SGX:Q5T)

Far East Hospitality Trust - Improvement In Hotels Segment

FAR EAST HOSPITALITY TRUST (SGX:Q5T)’s 3Q19 gross revenue grew 1.2% y-o-y to S$30.9m while NPI rose 1.3% to S$28.1m. The growth was driven by higher contribution from all 3 components of Far East Hospitality Trust’s portfolio. See Far East Hospitality Trust Announcements.
3Q19 DPU dropped 1.0% y-o-y to 1.04 S cents, mainly due to an enlarged base as a result of the implementation of the Distribution Reinvestment Plan in the last three quarters. As such, 3Q19 DPU and 9M19 DPU come up to 27% and 75% of initial full-year forecast, which we consider to be in-line with our expectations. See Far East Hospitality Trust Dividend History.

On a segment basis, hotels segment saw some improvement in 3Q, helped by stronger leisure travel market. Hotel RevPAR was flat at S$152, on the back of 2.0% decline in ADR and 1.6pp increase in occupancy (92.3%). The decline in ADR from S$168 to S$164 was mainly due to lower corporate travel demand and a greater composition of lower-rated leisure business.
YTD Sep ADR fell 1.5% y-o-y to S$143. The serviced residence (SRs) recorded stronger performance in 3Q as compared with hotels segment. SRs RevPAR grew 5.7% to S$196, on the back of 4.4% growth in ADR to S$222 and a 1.0pp increase in occupancy to 88.2%.
YTD Sep ADR of SRs rose 3.0% y-o-y to S$181. 3Q19 revenue from the retail and office spaces rose marginally by 0.1% y-o-y to S$5.5m

Hotel room supply in Singapore is benign at a lower CAGR of 1.3% for the next 4 years. While demand from corporate travels is likely to remain soft amidst economic uncertainties (note that corporate segment contributed 33.3% of the total hotel room revenue in FY18), we expect demand from leisure travel to remain healthy.
YTD Aug 2019, inbound tourism increased 1.9% y-o-y to 12.9m and is anticipated to grow 1% to 4% for 2019. Looking ahead, we are expecting a brighter 2020, driven by biennial and a number of inaugural events in Singapore.
We adjusted our NPI forecasts upwards marginally for FY19 and FY20. As such, our fair value estimate increases from S$0.67 to S$0.68. See Far East Hospitality Trust Share Price; Far East Hospitality Trust Target Price.

Chu Peng OCBC Investment Research | https://www.iocbc.com/ 2019-10-31

SGX Stock Analyst Report HOLD MAINTAIN HOLD 0.68 UP 0.670