Far East Hospitality Trust

Far East Hospitality Trust (FEHT): Recently, FEHT entered into a 30/70 JV with sponsor Far East Organisation to develop an 850-key integrated development in Sentosa, comprising two hotels in the mid-tier/upscale segment. The development of Outpost Hotel Sentosa and Village Hotel Sentosa will cost c.$444m, which have land tenures of 60 years from 2014. The hotels are expected to be completed in 2018, and StanChart estimates room sizes could be c.270-300 sf on average. House estimates gearing to reach c.34%, from 31% currently. This is the first major development project for a hotel SREIT and the initial cost of c.$522k/key appears reasonable, given hotel transactions in the past year have been at $0.7-$1.5m/key. StanChart expects the project to be 1-4% accretive to earnings and raised TP by c.3% to $0.75. House maintains our Underperform rating on FEHT.