SINGAPORE (Feb 3): Far East Hospitality Trust’s (FEHT) distribution per unit (DPU) in 2020 is expected to be hit as a result of the coronavirus outbreak, according to DBS Group Research.
This comes as Singapore recently initiated a travel ban on all China passport holders and foreigners who have visited China in the past 14 days.
Given that 70% of FEHT’s revenue is derived from the local market, DBS believes its operations would be “adversely impacted”.
Hence, the brokerage has downgraded FEHT to a “hold” rating and lowered its target price to 69 cents from 80 cents previously.
“We believe that a fall in tourist traffic will result in higher competition and likely to affect FEHT’s DPU performance this year,” DBS analyst Derek Tan writes in a note dated Feb 3.
FEHT’s serviced residence business could also face headwinds, according to DBS.
It notes that the change in regulations to allow private residential units to be rented out for a minimum of three months instead of six months previously would introduce additional competition.
This may cause near-term pressure on room rates for FEHT’s serviced residence segment, although this will be partially offset by its strategy to target shorter term leisure guests, the brokerage says.
Still, DBS reckons that FEHT should benefit from a positive medium-term outlook for the hotel industry.
It points out that supply is constrained as no new hotel land sites were released by the Singapore government from 2014 to 2017.
DBS has projected new room supply to only grow by 1% to 2% per annum from 2020 to 2023, compared to 4% to 7% over the past few years.
“We believe the supply curtailment and growing travel demand due to rising Asian affluence should lead to an increase in RevPAR,” says Tan.
“In addition, FEHT’s earnings should benefit from the opening of the first phase of the 850-room Sentosa going forward,” he adds.
As at 2.33 pm, FEHT traded up 2 cents or 2.9% at 66 cents, with 4.7 million units changed hands.
