SINGAPORE (Nov 7): OCBC Investment Research is keeping its “hold” call on Far East Hospitality Trust (FEHT) with a slightly lower fair value estimate of 65 cents, from 66 cents previously.
This comes after FEHT in the 3Q ended September posted an 8% decline in distribution per stapled security (DPS) to 1.03 cents, from 1.12 cents a year ago.
However, OCBC lead analyst Deborah Ong notes that the quarterly distribution was within expectations, making up 26.1% of the research house’s full-year forecast.
In addition, Ong highlights that hotel revenue per available room (RevPAR) edged up by 0.4% to $143 in 3Q17 – marking the REIT’s first year-on-year increase since its listing.
See: Far East Hospitality posts 8% drop in 3Q DPS to 1.03 cents on lower revenue
“We note that 4Q17 will likely be challenging for the REIT given that 1,500 hotel rooms are expected to enter the market. These rooms form approximately 60% of the 3.9 percentage point increase in room supply expected for the whole year,” says Ong.
As such, OCBC is lowering its projections for FEHT’s RevPAR and revenue per available unit (RevPAU) growth in FY18.
However, Ong says that the possibility of the acquisition of the 314-room Oasia Hotel Downtown could give FEHT a boost.
“We see the announcement of an acquisition before year-end or in early FY18 as a possibility,” says Ong. “Given FEHT’s low gearing of 32.1% as at Sept 30, 2017, and an average cost of debt of approximately 2.5% currently, we believe the acquisition is likely to be yield accretive.”
According to Ong, the acquisition could add 0.22 cents to its FY18 dividend forecast and 4 cents to its fair value.
As at 11.29am, units of FEHT are trading half a cent higher at 71.5 cents, implying an estimated yield of 5.8% in FY18 without the inclusion of the possible Oasia Hotel Downtown acquisition.
