SINGAPORE (Apr 27): OCBC and CIMB are maintaining their “buy” and “add” calls on Far East Hospitality Trust (FEHT) with a fair value and target price of 73.5 cents and 79 cents, respectively, after its manager on Thursday announced a 1Q18 distribution per stapled security (DPSS) of 0.94 cent.
See: Far East H-Trust posts 1Q DPSS of 0.94 cent, up 1.1% y-o-y
In a Friday report, OCBC lead analyst Deborah Ong says she sees overall revenue per available room (RevPAR) picking up further into the year, given that much of the previous year’s hotel room supply injection was backend-loaded.
She also notes that the increased y-o-y RevPAR over the latest quarter was achieved despite ongoing room renovations at Orchard Parade Hotel, supported by a pick-up in overall demand as well as some uplift from the biennial Singapore Airshow in Feb.
Addressing concerns of subdued corporate demand as noted by FEHT’s management in its 1Q results filing, Ong highlights that the serviced residence (SR) portfolio only contributed to 12.3% of total revenue over the quarter, with hotels contributing 66.3% and retail/office revenue making up the remainder.
“We are more cognisant of the soft corporate demand situation faced by FEHT’s serviced residences as well as the negative rental reversions at the REIT’s commercial properties. Nonetheless, we see value for investors as at 26 Apr’s close [at 68 cents],” says Ong.
“For the rest of the year, we look forward to a full inventory from Orchard Parade Hotel and contributions from Oasia Hotel Downtown which was acquired on 2 Apr 2018. In addition, we expect the contributions from FEHT’s stake into the Sentosa project to bear fruit in 2019,” she adds.
In a separate report on Thursday, CIMB lead analyst Yeo Zhi Bin says the trust’s latest set of 1Q18 results validates his view that recovery for hotels is firmly on its way, and serves as an encouraging read-through for the Singapore-focused hospitality REITs.
Soft corporate demand remains Yeo’s main concern, and he expects SRs recovery to lag that of the hotel industry. He forecasts a 2.5% y-o-y increase in revenue per available unit (RevPAU) as SRs recover from a low base, with FEHT focusing on raising occupancy for the rest of the year.
Altogether, Yeo sees FY18F DPU to grow 8.9% on-year, with slight drags coming from SRs and the trust’s commercial premises, which continue their decline on lower rental rates.
“Coupled with the recovery in the industry, renovation at Orchard Parade has been completed and FEHT can now operate with a full inventory. In addition, FEHT could start to price up its hotel rooms as occupancy is full. New contributions from Oasia Hotel downtown would also come in 2Q18,” says the analyst.
As at 12.16pm, units in FEHT are trading 1.5% higher at 68 cents or 0.8 times and 0.79 times FY19 book based on OCBC and CIMB’s forward estimates, respectively.
