Far East Hospitality Trust upgraded to Buy by OCBC after recent selloff

Singapore two-dollar bills

OCBC upgraded Far East Hospitality Trust to Buy from Hold, saying the share has fallen “too far south from our fair value” of S$0.69.

“We believe the unit price correction is overdone,” OCBC said in a note on Monday, adding it saw value at Friday’s closing level of S$0.62, which market a 6.8 percent 2018 yield, slightly above its five-year average.

“We believe this presents an attractive opportunity for investors given that FEHT has been suffering from an operational decline for the bulk of the past five years and has only recently started its RevPAR recovery,” it said. RevPAR stands for revenue per available room.

It said that Far East Hospitality Trust’s second quarter results were “decent,” with the distribution per unit (DPU) rising 4.1 percent on-year to 1.01 Singapore cents and hotel RevPAR rising around 3-4 percent on-year, excluding the Oasia Hotel Downtown. That compared with Singapore hotel RevPAR declines at OUE Hospitality Trust and CDL Hospitality Trusts in their second quarter results, it said.

“We believe FEHT still has room to post positive RevPAR growth against its low base last year,” it said.

OCBC added that it expected “minimal to no impact” from a recent announcement by the Competition and Consumer Commission of Singapore of a proposed infringement decision (PID) against owners/operators of four hotels, including Far East Hospitality Trust’s Village Hotel Changi, for allegedly exchanging sensitive corporate consumer information.

While the bank noted that the PID was one reason for the recent unit price weakness, the trust has since clarified that the trustee, REIT manager and the REIT were not named in the PID, it said.

“We note that there may be slight reputational implications stemming from the alleged infringement by the master lessee and the operator, but we expect the impact on FEHT to be minor at most,” OCBC said.

“The counter remains our top pick amongst hospitality S-REITs under our coverage,” OCBC said.

The unit ended up 2.42 percent at S$0.635 on Monday.

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