• Lucky Year of the Dog!
• 6.2% FY18F yield as at 15 Feb close
• Maintain BUY

4Q17 Results Within Expectation

Far East Hospitality Trust's (FEHT) results were within expectations. 4Q17 gross revenue dropped 6.6% YoY to S$25.7m. Hotel RevPAR and Serviced Residences (SR) RevPAU dropped 2.4% YoY and 5.5% YoY respectively in 4Q17, which contributed to the master lease rental dropping 7.8% YoY. 4Q17 DPU dropped 13.4% YoY to 0.97 S cents. Altogether, FY17 revenue was down 4.8% YoY to S$103.8m while DPU ended 9.9% down YoY at 3.90 S cents or 98% of our full-year forecast.

Orchard and Novena Assets Affected in 4Q17

We were slightly surprised by the weakness in 4Q17 RevPAR/RevPAU relative to the figures released by other REITs as well as Singapore Tourism Board (STB) since our last report. Recall that CDL Hospitality Trusts reported a 1.1% growth for its local hotels, while OUE Hospitality Trust posted a 2% RevPAR gain for Mandarin Orchard Singapore.

For SRs, Ascott Residence Trust reported a 6% growth for its Singapore assets under management contract. FEHT’s management indicated that its Orchard assets and Oasia Hotel Novena found the entry of the nearby hotels in 4Q17 challenging. We believe poorer operating performance from these assets pulled down the positive RevPAR trend for the rest of the hotel portfolio.

OHD Has Clear Potential for RevPAR Improvement

We continue to see 2018 as a period of recovery from this low base, though we tweak our RevPAR growth rates for FY18 downward. For the serviced residences, we believe 1Q18 should see a marked improvement YoY – recall that FEHT’s SR suffered a 13.1 ppt drop in occupancy to 71.2% in 1Q17. The SR occupancy has since recovered to 78.2% as at 4Q17.

We remain positive on the acquisition of Oasia Hotel Downtown (OHD), which is expected to complete in April. We had a tour of asset after last Thursday’s briefing and were impressed with the facilities. We expect that OHD will be able to achieve higher NPI in time, relative to the ~S$170 figure clocked for 9M17.

After adjustments, our fair value decreases from S$0.77 to S$0.75. As at 15 Feb’s close, FEHT is trading at a FY17 yield of 5.5% (actual) and a FY18F yield of 6.2% (our forecasts). Maintain BUY.

Source: OCBC Research - 19 Feb 2018