CFA Society Singapore
SINGAPORE (Feb 14): DBS Group Research, CGS-CIMB Securities and Maybank Kim Eng are maintaining their “buy” calls on Far East Hospitality Trust with the respective price targets of 70 cents, 68 cents and 75 cents.
This comes after the REIT manager on Wednesday posted a 3.1% increase in 4Q distribution per stapled security (DPS) to 1 cent, with expectations for the trust to enjoy even stronger growth momentum going into FY19.
In a Thursday report, DBS analyst Mervyn Song says FEHT’s latest set of earnings prove that its DPS is now on a recovery path after posting declines over 2015-2017, and thus signals the likelihood of progressive return of investor confidence.
In his view, the trust is trading at a steep discount to book value at 0.8 times P/BV, which implies a 6.5% yield.
Despite market concerns over FEHT’s sustainability of its distributions, due to a recent reduction in the minimum stay for residential buildings to three months from six months previously, the analyst believes risks regarding this issue have already been priced in.
“The serviced residences only represent 12% of revenue, and FEHT has consistently boosted occupancy for the serviced residence portfolio to the mid to high 80’s from high 70’s to low 80’s over the past few quarters. We also believe consensus is ignoring the expected recovery in the Singapore hotel portfolio as demonstrated by a 7.5% y-o-y increase in revenue per available room (RevPAR) in FY18,” says Song.
CGS-CIMB analyst Eing Kar Mei likes FEHT for its strong FY18 revenue per available room (RevPAR), which improved 6.2% y-o-y on the back of increased average occupancy and average daily rate (ADR).
She also highlights strong improvements in the serviced residents’ ADR in 4Q18, with strong revenue available unit (RevPAU) growth of 7.5% helping to push FEHT’s full-year RevPAU into positive territory over the latest quarter.
“Management remains upbeat on the outlook of its hotel business going forward, driven by stronger tourist arrivals and lower supply of hotels in 2019. As for the SR business, with the higher occupancy rate, management hopes that RevPAU will be better than the reported growth of +0.9% in FY18,” notes Eing.
Meanwhile, Maybank analyst Chua Su Tye is forecasting a 5% recovery in hotel RevPARs and 6% DPS CAGR in FY19-20E.
In all, the analyst is projecting a RevPAR growth of 5-6% in FY19-20E on stronger volume growth and a pick-up in yields – in line with management expectations of growth momentum to be strengthened by easing supply, further supported by the completion of renovation works and rebranding efforts at Orchard Rendezous hotel.
Chua also sees medium-term DPS growth-levers from FEHT’s sponsor’s right of first refusal (ROFR) pipeline of 1,767 rooms as the properties scale up – including the sponsor’s remaining interests in three Sentosa hotels, The Village, Outpost and Barracks.
“The first two properties [The Village and Outpost] are set for official opening from Apr 2019, and their pricing strategies are correct, in our view, compared to other higher-priced accommodation options on Sentosa island,” he adds.
Units in FEHT were up 0.79% at 64 cents before the midday trading break, or 18.85 times FY19F P/E based on DBS estimates.