Far East Hospitality Trust - CIMB Research 2016-02-24: Trading room rates for occupancy

FAR EAST HOSPITALITY TRUST Q5T.SI

Far East Hospitality Trust - Trading room rates for occupancy

4Q15 DPU of 1.17 Scts (-9% yoy) was broadly in line with expectations, at 24% of our full-year forecast. FY15 DPU of 4.6Scts (-11% yoy) was at 95%.
Hotels’ RevPar decreased 4.4% yoy as FEHT traded room rates for occupancy.
Increase in Oceania contributions as joint-marketing efforts pay off.

Due to lower contributions from hotels and serviced residences (SRs), FEHT’s gross revenue and NPI in 4Q15 both fell 5% yoy.
Finance costs rose by 10.5% yoy as shortterm interest rates had risen considerably in the quarter. The effective interest cost was 2.5% for FY15 vs. 2.2% FY14 (59% of the trust’s interest rate is fixed). This resulted in a 10% yoy drop in distributable income. The ex-date is on 1 Mar 2016.

FEHT’s hotels' RevPar decreased 4.4% yoy to S$146 in 4Q15, though the decline was not as steep as its peer CDL-HT (-7.8%). Industry-wide, RevPar for mid-tier hotels decreased by 2% yoy for Oct-Nov 2015. We view that FEHT was much more aggressive in room rates, as it slashed ADR by 7.6% to S$171, which bolstered its hotels' average occupancy to 85.3% (+2.9% pts). On the other hand, CDL-HT had a moderate cut in ADR (-2.9%) and lost market share (average occupancy down 3.5% pts to 86.5%).

Revenue from Oceania showed the largest yoy increase. The region contributed 11.2% of hotel revenue in 4Q15 vs. 8.9% in 4Q14, as joint marketing efforts with TFE hotels in Australia were paying off.
In addition, FEHT booked an S$42m devaluation loss for its investment properties (1.7% of its AUM), partly due to The Elizabeth Hotel. Its portfolio cap rate felt a c.25bp compression. Cap rates for its hotels ranged from 4.75% to 5.75% while cap rates for its SRs ranged 3.75-5.25%.

FEHT’s SR’s RevPau fell 13.5% yoy to S$180 in 4Q15, worse than ART’s Singapore RevPau decline of 8%, as the trust suffered from a sharp drop-off in corporate demand. To uphold occupancy (0.6% pts lower at 82.6%), FEHT targeted large group business and cut ADR by 12.8% to S$218.
On AEIs, FEHT is midway through refurbishing three properties (Regency House, Orchard Parade and Central Square), and we expect soft refurbishment of other properties in 2016.

We maintain Hold on the stock as we are bearish of the fierce competitive pressures the hospitality segment would endure in 2016.
We cut our FY16-17 DPU projections by 7- 8% (lower RevPars and higher interest costs) and introduce our FY18 forecasts.
Our DDM-based target price drops to S$0.61 accordingly.

LOCK Mun Yee CIMB Securities | YEO Zhi Bin CIMB Securities | http://research.itradecimb.com/ 2016-02-24

CIMB Securities SGX Stock Analyst Report HOLD Maintain HOLD 0.61 Down 0.70