SINGAPORE (Nov 5): Analysts are bullish on Far East Hospitality Trust (FEHT) amid a recovery in the Singapore hospitality sector.

With a portfolio of 13 properties, FEHT bills itself as the “first and only Singapore-focused hotel and serviced residence hospitality trust listed on the Singapore Exchange”. And market watchers see the REIT as a pure-play into the recovery.

DBS Group Research is upgrading FEHT to “buy” from “hold and raising its target price by 14.3% to 80 cents, while Maybank Kim Eng Research is maintaining its “buy” call with an unchanged target price of 80 cents.

“We turn positive on FEHT’s ability to leverage on the impending upturn in the Singapore hospitality sector from 2020 onwards,” says DBS lead analyst Derek Tan in an Oct 31 report.

The way Tan sees it, the rising demand for rooms will drive a sustained rise in room rates in the near term. This, in turn, will lead to higher distribution per unit (DPU), he says.

Meanwhile, in the medium term, Maybank analyst Chua Su Tye sees DPU growth levers from its sponsor’s right-of-first-refusal (ROFR) pipeline of 1,767 rooms and its remaining interests in three Sentosa hotels – The Village, Outpost, and Barracks.

“We see the 116-room Oasia West Residences as a closer acquisition target, backed by favourable demand fundamentals,” Chua says in an Oct 31 report.

“We believe hotel revenue per available room (RevPAR) recovery will be backed by tightening supply and continue to see upside potential from its higher Singapore RevPAR sensitivity,” he adds.

The optimism comes despite FEHT reporting a 1% dip in distribution per stapled security (DPS) of 1.04 cents for the 3Q19 ended September, some 1.0% lower than DPS of 1.05 cents a year ago.

The decline, however, was mainly due to an enlarged unit base.

Income available for distribution rose 1.5% to $20.4 million in 3Q19, as gross revenue edged up by 1.2% to $30.9 million and net property income (NPI) climbed 1.3% to $28.1 million on the back of an improvement in the year-on-year performance of its hotel and serviced residences portfolios.

See: FEHT posts 1% dip in 3Q DPS to 1.04 cents on enlarged base

“Despite the revision to our estimates, our forecast is still low compared to consensus as we have only projected 3% recovery in RevPAR in 2020-2021,” says DBS’ Tan.

“After the acquisition of Oasia Hotel Downtown in early 2018, we understand FEHT is engaged with its sponsor on further potential acquisitions. Any acquisition can further lift our earnings and DPU estimates,” he adds.

Units in Far East Hospitality Trust closed half a cent down at 73 cents on Tuesday. According to DBS valuations, this implies an estimated price-to-earnings (PE) ratio of 24.3 times, a price-to-net asset value (P/NAV) of 0.9 times, and a distribution yield of 5.4% for FY19F.