Far East Hospitality Trust

OCBC on 26 Sept 2012

Far East H-Trust's portfolio consists of 11 properties in Singapore, including seven hotels and four serviced residences, giving a total of 2,531 rooms/units. The trust has the largest diversified hospitality portfolio in Singapore by asset value, equaling S$2.14b. With a mix of hotels and serviced residences, the portfolio is able to ride on the up-cycle in the hotel industry, while the serviced residences would provide downside protection during economic slowdowns. The Sponsor is part of Far East Organization, which is the largest private property developer in Singapore. Three hotels and four serviced residences have been identified by the Sponsor as Sponsor Right of First Refusal (ROFR) properties which could be offered to Far East H-Trust. These properties could significantly increase the number of hotel rooms/serviced residence units in the trust by 1,242 rooms/units, or 49.1%, to 3,773. We initiate with BUY and a RNAV-based fair value of S$1.08.

Largest diversified hospitality portfolio by asset value
Far East H-Trust's portfolio consists of 11 properties in Singapore, including seven hotels and four serviced residences, with 2,531 rooms/units in total. The trust has the largest diversified hospitality portfolio in Singapore by asset value, equaling S$2.14b. With a mix of hotels and serviced residences, the portfolio is able to ride on the up-cycle in the hotel industry, while the serviced residences would provide downside protection during economic slowdowns due to the longer average stay. We note that the hotels have good locations, with the majority located in the Core Central Region. Five of the hotels are close to private hospitals, enabling them to benefit from anticipated growth in Singapore's healthcare tourism.

Positive outlook for the Singapore hospitality sector
For 2012-2014, we estimate that the overall hotel room demand in Singapore will grow at 6.4% p.a., outstripping expected hotel supply growth of 4.8% p.a. On a combined basis, we see Mid-tier and Upscale hotel room supply growing at 4.8% p.a.

Credible and experienced sponsor
The Sponsor is part of Far East Organization, which is the largest private property developer in Singapore. Far East Organization has developed real estate in the residential, hospitality, commercial, medical and industrial sectors. It has substantial experience managing hospitality assets and its total hospitality portfolio (including the initial portfolio of the Far East H-Trust) comprises 18 properties valued at more than S$3.0b as at 31 Dec 2011. The hospitality operations have also established three in-house brands - Village, Oasia and Quincy.

Visible and substantial pipeline
Three hotels and four serviced residences have been identified by the Sponsor as Sponsor Right of First Refusal (ROFR) properties which could be offered to Far East H-Trust. These properties, if acquired could increase the number of hotel rooms/serviced residence units in the trust by 1,242 rooms/units, or 49.1%, to 3,773.