OCBC Investment Research
Market Pulse
26 Sep 2012
2
Far East Hospitality Trust: Largest pure
Singapore hospitality REIT
● Pure Singapore hospitality play
● Strong sponsor
● Clear and sizeable pipeline
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 inhouse
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.
Initiate with BUY
We initiate with BUY and a RNAV-based fair
value of S$1.08. (Sarah Ong)
. . . . .
Office REITS: Rental declines likely
slowing in 3Q12
● Rental decline likely slowing in 3Q12
● Limited supply till 2H13
● Maintain OVERWEIGHT
Office rentals decline likely to slow in
3Q12
We believe the office rentals are likely to
show a more subdued dip in 3Q12 after three
consecutive quarters of declines since 3Q11.
Over 2Q12, Grade A office rentals fell 4.7%
QoQ to S$10.10 which cumulated in an 8.7%
decline over three quarters. Core CBD
vacancies, however, showed a reversal from
a rising trend in 2Q12 to register a 0.9 ppt
dip to 8.4%. A similar picture was seen for
island-wide vacancy rates which declined 0.9
ppt to 6.4% (end 2Q12) from 7.3% (end
1Q12). We expect a similar trend for
vacancies in 3Q12 which would likely
contribute to a muted rate of rental decline.
Office absorption coming in above
expectations
The 2Q12 decline in vacancies was mostly
due to net absorption coming in at ~470k sq
ft – in line with our forecast but markedly
above market expectations which had
anticipated a softer demand on macroeconomic
weaknesses. Grade A capital values
also dipped an estimated 2% QoQ marginally
to $2,450 psf in 2Q12 (1Q12: S$2,500 psf)
as investment sales slowed and market
players adopted a wait and see attitude in
light of the residual uncertainty in the macroeconomy.
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MARKET WATCH 26 Sep 2012
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