Far East Hospitality Trust - CIMB Research 2015-11-03: Seasonal uptick in tourist arrivals + lower room rents help stabilize occupancy

Far East Hospitality Trust - CIMB Research 2015-11-03 FAR EAST HOSPITALITY TRUST Q5T.SI 

Far East Hospitality Trust - Seasonal uptick in tourist arrivals + lower room rents help stabilize occupancy 

  • 3Q15 DPU of 1.2 Scts (-9% yoy, +3% qoq) broadly in line with expectations. 
  • Seasonal uptick + lower room rents help to stabilize hotel occupancy. Service residences comparatively worse off, with drop-off in corporate demand. 
  • Watch the supply bump in 4Q; maintain Hold. 

Softer macro conditions, strong S$ & haze led to 5% yoy dip in NPI 

  • On the back of softer macro conditions, a strong S$ and the outbreak of the haze,, FEHT reported a 5% yoy dip in NPI for 3Q15 (S$26.9m). On a qoq basis, a seasonal uptick in tourist arrivals vs. 2Q and lower ADRs arrested the quarterly declines, and NPI grew 3% qoq. 

Uptick in arrivals & lower room rents kept hotel occupancy steady 

  • An uptick in tourist arrivals and competitive room rents (S$172, -6% yoy) kept hotel occupancy steady at 87.4%. As a result, RevPar slid 5.6% yoy to S$151. Chinese visitors in Singapore grew 3.1% yoy and helped offset slower visitors from Indonesia,, Australia and Japan (afflicted by weak currencies). 
  • In 8M15, visitor arrivals dipped 0.6% to 10.2m. However, STB still expects Singapore to remain on track to receive 15.1-15.5m visitors in 2015 (2014: 15.1m), implying a back-end-loaded year. 

Service residences comparatively worse off with drop-off in corporate demand 

  • Affected by ongoing renovation at Regency House (to be completed by 1Q16) and a drop-off in corporate demand, service residences were comparatively worse-off.. Average occupancy dropped 2% pts yoy to 90.2%. FEHT lowered ADR by 7.2% to S$232 to attract group demand. RevPar correspondingly fell 9.2% yoy to S$209. 
  • By industry, the group saw contributions from FIs dropping to 17.9% of revenue for 3Q15 (3Q14: 27.6%) and Oil & Gas dropping to 11.9% (3Q14: 13%). The services sector was the bright spot, increasing to 30.1% (3Q14: 28.4%). 
  • The retail and office spaces continued to provide stability in the portfolio, with revenue growing 3.8% yoy to S$6.1m. 

Watch the supply bump in 4Q; maintain Hold 

  • With South Beach (upscale segment) and Hotel Boss (mid-tier) expected to open in 4Q, we believe that FEHT may have to lower room rates further to maintain occupancies and market share. 
  • More importantly, South Beach and Hotel Boss account for around half of the 4,272 incoming rooms for 2015. Hence, we maintain our Hold recommendation and keep our DDM-based target price unchanged. (S$0.70)

LOCK Mun Yee CIMB Securities | http://research.itradecimb.com/ 2015-11-03
CIMB Securities SGX Stock Analyst Report HOLD Maintain HOLD 0.70 Same 0.70