SINGAPORE (Apr 29): CGS-CIMB Securities and Maybank Kim Eng are maintaining their “buy” calls on Far East Hospitality Trust (FEHT) with target prices of 71 cents and 80 cents respectively.
Although off to a slow start in 1Q19, CGS-CIMB says the hospitality REIT should gain on lower cost of equity assumption due to a more benign interest rate outlook while Maybank says FEHT’s business fundamentals have remained sound.
To be sure, FEHT’s management remains cautiously optimistic on the outlook for its hotel business for the remainder of this year due to limited new supply and is maintaining its guidance for 3-4% industry RevPar growth, in tandem with CGS-CIMB and Maybank’s 3% growth assumption for FEHT.
Maybank expects the 5-6% recovery in hotel RevPARs will be backed by a tightening supply outlook, which will anchor a 6% DPU CAGR in FY19-20E.
This will be further supported by the completion of renovation works and rebranding efforts at its Orchard Rendezvous hotel where RevPAR growth is expected to be supported by higher corporate demand contribution.
In addition, both research houses say there exists “levers of medium-term DPU growth” from FEHT sponsor’s ROFR pipeline of 1,767 rooms as the properties scale up.
These include the sponsor’s remaining interests in three Sentosa hotels -- The Village (at 606 rooms), Outpost (193), and Barracks (40) -- and Oasia West Residences, a 116-room serviced residences.
The first two opened in April and were at near full capacity at the recent Good Friday weekend, according to management.
CGS-CIMB believes as the Village Hotel and The Outpost hotels in Sentosa ramp-up, the drag on earnings would likely weaken in the medium term.
Meanwhile, management expects the serviced residences segment to remain stable.
In 1Q19, RevPau remained flat y-o-y at $174 as the 1.3% y-o-y improvement in average daily rates was offset by a 1.1 percentage point decrease in average occupancy to 80.2%.
Although the corporate segment remained subdued, there was healthy growth from some sectors such as banking & finance, services and FMCG industries.
Revenue from corporate accounts dipped to 71.2% from 73.3% in 4Q18 but an increase in online bookings resulted in a larger contribution from the leisure segment.
As at 4.10pm, units in FEHT are trading flat at 66 cents.
