CFA Society Singapore
SINGAPORE (Apr 16): “According to channel checks as well as Singapore Tourism Board (STB) data, we are likely looking at a soft 1Q19 for SG hotels,” says OCBC Investment Research analyst Deborah Ong in a Monday report.
The STB data reflected poor RevPAR performance from upscale and mid-tier hotels for Jan-Feb 2019. Upscale hotels posted -3.8% and -6.5% y-o-y RevPAR growth for Jan and Feb respectively, while mid-tier hotels posted 1.0% and -4.3% y-o-y RevPAR growth.
Channel checks have also revealed that March was also a subdued month for the industry.
Since the trust’s portfolio of hotels and serviced residences are wholly located in Singapore, and operate largely in the mid-tier upscale segments, the analyst believes that the SSTB figures are relevant to FEHT’s operational performance.
With this, the research house has downgraded its call on Far East Hospitality Trust (FEHT) to “hold” from “buy” previously, with a fair value estimate of 68 cents.
“Given that the supply situation remains favourable, we believe the softness in RevPAR has more to do with the absence of events that were held last year (eg. the biennial Singapore Airshow),” says Ong.
To recap, FEHT received an upgrade report on Aug 13, 2018. And from then till the close on Apr 12, the trust has posted total returns of 14.2%, compared to the Straits Times Index’s (STI) 3.0% and the FTSE Straits Times REIT Index’s (FSTREI) 11.2%.
But as at the close on Apr 12, OCBC Research no longer finds the stock attractive as it is now above its 68 cents fair value.
“That said, beyond 1Q19, we continue to see a two-year runway for RevPARs to improve given the benign supply outlook,” says Ong.
As at 12.15pm, units in FEHT are trading at 68 cents or 20.1 times FY19 earnings with a DPU yield of 5.9%.