Far East Hospitality Trust - CIMB Research 2016-07-29: Blame it on June and the renovations

Far East Hospitality Trust - CIMB Research 2016-07-29: Blame it on June and the renovations FAR EAST HOSPITALITY TRUST Q5T.SI 

Far East Hospitality Trust - Blame it on June and the renovations

  • 1HFY16 DPU of 2.09 Scts (-6% yoy) was slightly below our expectation and consensus, forming 46% of our full-year estimate. 2Q16 at 22%.
  • Hotel RevPAR for 2Q16 was down 7.5% yoy due to renovation at Orchard Parade Hotel and an awful June.
  • Serviced residences RevPAU for 2Q16 was down 8.9% yoy due to weakness in corporate demand.
  • Trading conditions remain challenging; we maintain Hold with an unchanged TP. DPU cuts are offset by across-the-board reduction in Rf assumption.

2QFY16 results summary

  • FEHT achieved a 2Q DPU of 1.01 Scts (-13% yoy) as trading conditions remained challenging. Consistent with what we have been hearing, June was an awful month for the hospitality industry as room demand suddenly evaporated. 
  • Additionally, there was the absence of the SEA Games which boosted Jun 15’s numbers. Thirdly, the refurbishment of public spaces at Orchard Parade impacted the trust more than it anticipated. Occupancy at Orchard Parade was shaved off by 10% pts in the quarter.

Hotel RevPAR for 2Q16 down 7.5% yoy to S$136

  • Hotel occupancy for 2Q16 dropped 1.4% pts yoy and 2.7% pts qoq to 85.3%. ADR dropped 6.1% yoy (flat qoq) to S$160. Hence, RevPAR dropped 7.5% yoy. For 1H16, RevPar decreased 3.9% yoy to S$138. 
  • With this set of results, an encouraging 1Q16 performance was thrown out of the window. We are now expecting hotel RevPAR to decrease 4.2% yoy for FY16 (previously flat yoy; FY15: -5.8%).

Serviced residences RevPAU for 2Q16 down 8.9% yoy to S$187

  • Serviced residences occupancy for 2Q16 dropped 3.3% pts yoy but improved 1.7% qoq to 86%. ADR dropped 5.4% yoy and 2.2% qoq to S$218. Hence, RevPAU dropped 8.9% yoy. 
  • For 1H16, RevPAU decreased 8.7% yoy to S$188. With the drop-off in oil & gas, the Manager is trying to re-position some of the properties to attract corporate customers from other trade sectors such as electronics and manufacturing.

Revenue strategy for hotels in the 2H

  • The trust’s focus now is to keep occupancy high. With the drop-off in corporate demand, the Manager would target leisure travelers. That said, leisure travelers pay a lower rate vs. corporate customers. 
  • In addition, there is a limit to the volume of leisure travelers which FEHT’s hotels can attract as the properties are not positioned for group travel. Leisure made up 62% of hotel revenue in 2Q16 (2Q15: 54.7%; 1Q16: 61%).

Trading conditions remain challenging; Hold maintained

  • Barring another bad June, we expect 2H16 to be slightly better than 1H16. The view is also supported by the fact that phase one of the AEI of Orchard Parade Hotel has completed; and the property should be in a better shape. 
  • Phase two of the AEI (room refurbishments) will commence next year. Also, Sep is a typically good month for Serviced Residences. Not to forget, F1 will be in town. 
  • Overall, as trading conditions remain challenging, we maintain Hold on the stock with an unchanged DDM-target price (S$0.65).

LOCK Mun Yee CIMB Securities | YEO Zhi Bin CIMB Securities | http://research.itradecimb.com/ 2016-07-29
CIMB Securities SGX Stock Analyst Report HOLD Maintain HOLD 0.65 Same 0.65