• Strong performance since upgrade…
• But expect RevPAR softness for 1Q19 results
• 5.9% FY19F yield as at 12 Apr close

Weak SG RevPAR Data Points for 1Q19

According to channel checks as well as Singapore Tourism Board (STB) data, we are likely looking at a soft 1Q19 for SG hotels. STB data reflected poor RevPAR performance from Upscale and Midtier hotels for the first two months of the year: Upscale hotels posted -3.8% and -6.5% YoY RevPAR growth for Jan and Feb respectively, while Mid-tier hotels posted 1.0% and -4.3% YoY RevPAR growth.

Our channel checks have revealed that March was also a subdued month for the industry. 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 (e.g. the biennial Singapore Airshow).

Medium-term Outlook Should Still be Intact

Given that Far East Hospitality Trust’s (FEHT) portfolio of hotels and serviced residences are wholly located in Singapore, and operate largely in the mid-tier to upscale segments, we believe that these STB figures are relevant references for the operational performance of the REIT. That said, beyond 1Q19, we continue to see a two-year runway for RevPARs to improve given the benign supply outlook.

Total Returns of 14.2% Since Our Upgrade

Since our 13 Aug 2018 upgrade report till 12 Apr’s close, FEHT has posted total returns of 14.2% vs. the Straits Times Index’s (STI) 3.0% and the FTSE Straits Times REIT Index’s (FSTREI) 11.2%. As at 12 Apr’s close, we no longer find FEHT’s unit price compelling as it is now above our unchanged fair value of S$0.68.

Ascott Residence Trust (ART), CDL Hospitality Trusts (CDLHT), and FEHT are trading at FY19F yields of 5.9%, 5.7% and 5.9% respectively, based on our own forecasts. Using Bloomberg consensus figures, FEHT’s blended forward 12m yield is at 6.25%, or ~1 standard deviation below its 5 year average. We downgrade FEHT from a Buy to a HOLD.

Source: OCBC Research - 15 Apr 2019