• Negative performance since downgrade
• 6.1% FY19F yield as at 11 Jun’s close
• Cheaper, but not yet compelling

Underperformed the FSTREI by 8.8ppt Since Our 15 Apr Downgrade

Far East Hospitality Trust (FEHT) has posted total returns of –4.5% since our downgrade from Buy to HOLD on 15 Apr, vs. the FTSE Straits Times REITs Index’s total returns of +4.3% and the Straits Times Index’s total returns of -2.0% in the same period.

Latest Hospitality Figures Point to 2Q Weakness

Singapore Tourism Board’s (STB) Apr numbers reflect decent visitor growth but a generally disappointing RevPAR performance for the first month of the 2Q. Visitor arrivals were up +3.4% YoY in Apr, with visitor days up +4.0% YoY.

Meanwhile, RevPAR for Mid-tier and Upscale hotels posted -1.6% and -2.1% YoY growth in Apr respectively. This is broadly consistent with what was disclosed by CDL Hospitality Trusts (CDLHT) in their last results release: CDLHT’s SG RevPAR was down 3.5% for the first 25 days of April.

In our last report, we did highlight that April would continue to be challenging for Singapore hotels given the absence of biennial event Food&HotelAsia. In addition, the TrumpKim summit held in Jun last year was another boon for FEHT’s hotels that will be absent this year. We continue to see 2H19 as being more promising for RevPARs than 1H19, but continue to keep an eye on the US-China trade tensions and its implications for discretionary spending across the region.

Clearer Value Proposition at S$0.62 and Below

Based on our own forecasts, FEHT is trading at a FY19F yield of 6.1%, as at 11 Jun’s close. Using Bloomberg consensus figures, FEHT’s blended forward 12m yield stands at 6.65% as at 11 Jun’s close, very close to its 5-year average. In contrast, Ascott Residence Trust (ART) and CDLHT are trading at 1.8x and 1.1x standard deviations below their 5-year averages, respectively.

While FEHT’s unit price has come off with the counter trading at more reasonable valuations as compared to ART and CDLHT, we believe muted outlook for 2Q18 and ongoing macroeconomic uncertainties will weigh on the stock. We maintain HOLD on FEHT with an unchanged fair value of S$0.67.

Source: OCBC Research - 12 Jun 2019