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

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. 
  • SR’s RevPau fell 13.5% yoy due to sharp drop-off in corporate demand. 
  • Maintain Hold with lower TP. 

■ 4Q15 results highlights 

  • 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. 

■ Hotels: trading room rates for occupancy 

  • 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%). 

■ Increase in Oceania contribution 

  • 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%. 

■ Service residences hurt by sharp drop-off in corporate demand 

  • 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. 

■ Maintain Hold with lower target price 

  • 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