Far East Hospitality Trust - OCBC Investment 2016-04-28: Lowered FV; Maintain HOLD

Far East Hospitality Trust - OCBC Investment 2016-04-28: Lowered FV; Maintain HOLD FAR EAST HOSPITALITY TRUST Q5T.SI 

Far East Hospitality Trust: Lowered FV; Maintain HOLD 

  • 1Q16 DPU inched up 0.9% YoY 
  • Weak corporate demand 
  • Lower FV but maintain HOLD 

1Q16 results in-line with expectations 

  • Far East Hospitality Trust (FEHT) reported a muted set of 1Q16 results, but was still within our expectations. 
  • Gross revenue remained unchanged at S$27.4m, and came in at 23.0% of our full-year forecast. 
  • DPU increased 0.9% to 1.08 S cents, making up 23.4% of our previous FY16 DPU forecast. 
  • For FY14 and FY15, 1Q contribution to full-year DPU was 25.3% and 23.4% respectively; the former was skewed by 2Q’s lower contribution following the MH370 attacks. 

Oversupply to remain a challenge 

  • RevPAR for FEHT’s Hotels portfolio remained unchanged at S$141 in 1Q16, with occupancy increasing 5.7 ppt to 88.0% and ADR dropping 6.4% to S$160. 
  • RevPAU for FEHT’s Serviced Residences portfolio dropped 8.7% to S$188, with occupancy dipping 1.5 ppt to 84.3% and ADR decreasing 7.1% to S$223. We expect oversupply to remain a challenge with an estimated addition of 2,717 hotel rooms (+4.8%) coming into the market in 2016. 

AEI completion and upcoming MICE events 

  • Major events such as Food & Hotel Asia, BroadcastAsia, and Unicity are expected to provide a YoY boost to room rates and occupancy in 2Q16 and 3Q16. 
  • Furthermore, FEHT has completed its AEI at Village Residence Clarke Quay, which accounts for 34.8% of FEHT’s Serviced Residences units, and we expect this to contribute positively to revenue in this current quarter. 
  • AEIs at Regency House and Orchard Parade Hotel are earmarked for completion this quarter, the benefits of which will only be seen in 2H16. 

REVPAR/REVPAU growth assumptions adjusted downward 

  • Nonetheless, on a full-year basis, we continue to be concerned with the weak macroeconomic environment and oversupply situation. 
  • For FY16, we expect FEHT’s Hotels REVPAR to remain flat and Serviced Residences REVPAU to drop 5% YoY. 
  • Revenue from excluded commercial premises is expected to dip 1.7%. 
  • We lower our FY16 DPU forecast by 2% to 4.52 S cents on these weaker RevPAR/RevPAU assumptions, resulting in a reduced fair value estimate of S$0.63 from S$0.64 previously
  • Maintain HOLD.

Deborah Ong OCBC Securities | http://www.ocbcresearch.com/ 2016-04-28
OCBC Securities SGX Stock Analyst Report HOLD Maintain HOLD 0.63 Down 0.64