OCBC Securities 2015-08-11: Far East Hospitality Trust: Too early to turn positive despite price correction. Maintain HOLD.


Too early to turn positive despite price correction 

 2Q15 DPU fell 6.5% YoY
 RevPARs and RevPAUs down
 Challenging near-term outlook

2Q15 results slightly below our expectations 

  • Far East Hospitality Trust (FEHT) reported a subdued set of 2Q15 results which fell slightly short of our expectations. 
  • Gross revenue decreased 3.0% YoY to S$28.7m due to weaker performance from both its Hotels and Serviced Residences (SR) segments. 
  • Coupled with higher interest expenses, FEHT’s DPU slipped 6.5% YoY to 1.16 S cents, although this was an improvement of 8.4% on a QoQ basis. 
  • For 1H15, gross revenue was down 6.9% to S$56.1m and this formed 47.0% of our FY15 forecast. 
  • DPU of 2.23 S cents represented a decline of 12.2% and constituted 45.8% of our below-consensus fullyear projection. 

Competitive pressures have affected average room rates 

  • The influx of new hotel rooms, softer demand from an uncertain macroeconomic landscape and muted rental property market have culminated in a 2.1% and 5.1% YoY dip in RevPAR and RevPAU to S$147 and S$207 for FEHT’s Hotels and SR portfolio in 2Q15, respectively. 
  • Although occupancy was firm (+6.6 ppt to 86.7% for Hotels and +2.1 ppt to 89.3% for SR) due to management’s concerted efforts to attract more clients, this came at the expense of offering more competitive rates. 
  • FEHT’s average daily rate (ADR) for its Hotels slumped 9.6% YoY to S$170, while that of SR was down 7.3% to S$231. 
  • During the quarter, there was some positive impact from the SEA Games, as RevPAR for FEHT’s official accommodation hotel increased 10% in Jun as compared to its usual run-rate. 

Lower FV but maintain HOLD 

  • The estimated new supply of hotels coming on-stream this year has been increased from 3,331 to 4,272, largely due to the earlier-than expected completion of Hotel Boss. 
  • We pare our FY15 and FY16 DPU forecasts by 4.7% and 3.6%, respectively, on lower NPI margin and higher finance expense assumptions. 
  • Given the headwinds impacting Singapore’s hospitality industry, we also lower our terminal growth rate assumption from 2% to 1%. 
  • Consequently, our fair value is reduced from S$0.77 to S$0.67. 
  • Despite FEHT’s recent share price correction, we believe it is still too early to turn positive on the stock given the challenging near-term outlook and weak earnings visibility. 
  • Maintain HOLD

Wong Teck Ching Andy | http://www.ocbcresearch.com/ OCBC Investment Research 2015-08-11
HOLD Maintain HOLD 0.67 Down 0.77