Far East Hospitality Trust - OCBC Investment 2016-08-01: Maintain HOLD; FV increases to S$0.64

Far East Hospitality Trust - OCBC Investment 2016-08-01: Maintain HOLD; FV increases to S$0.64 FAR EAST HOSPITALITY TRUST Q5T.SI 

Far East Hospitality Trust: Maintain HOLD; FV increases to S$0.64

  • 2Q16 DPU fell 12.9% YoY.
  • Occupancy and ADR declines.
  • FY16/17 yield of 6.5%.

2Q16 results within expectations

  • FEHT’s 2Q16 results were within expectations, though only marginally so. 
  • 2Q16 DPU fell 12.9% to 1.01 S cents, coming up to 22.4% of our full- year forecast. 
  • In comparison, 2Q15 DPU contributed 25.2% of FY15 DPU and 2Q14 contributed 24.1% of FY14 DPU. 
  • 2Q16 gross revenue fell 9.1% YoY to S$26.1m, coming up to 22.3% of our full-year forecast. 
  • 2Q16 NPI dropped 9.7% YoY to S$23.5m, while distributable income fell 12.2% YoY to S$18.3m. 
  • We noted that the YoY decline in gross revenue and distributable income for 2Q was more drastic than that for 1Q. To explain the YoY RevPAR decline, management highlighted that this was due to the absence of SEA games this year as well as the change in Ramadan dates. 

Corporate demand continues to be weak. 

  • Within the quarter, June stood out as a poorly performing month. Looking forward to the second half, the management does not expect further downtime in properties as the AEI works are complete.

2Q16 RevPAR and RevPAU YoY declines

  • 2Q16 Hotel RevPAR declined 7.5% YoY to S$136, as occupancy dropped 1.4 ppt to 85.3% and ADR dropped 6.1% to S$160. The decrease in ADR was partly precipitated by the increase in proportion of leisure demand to 61.8% from 54.7% in 2Q15. 
  • Serviced residence RevPAU dropped 8.9% YoY to S$187, also on lower occupancy and ADR. Occupancy was 3.3 ppt lower at 86.0% and ADR was 5.4% lower at S$218.

Fine-tune FY16 growth assumptions

  • Given feedback of continued weak corporate demand and reported challenges from hotel oversupply, we are now more pessimistic on our occupancy and ADR assumptions. As a result, FY16 RevPAR is expected to drop by 4.5% YoY, while RevPAU is projected to fall 6.0% YoY. This results in our DPU forecast falling by 5.8% to 4.26 S cents. 
  • As we lower our risk-free rate from 3.0% to 2.4%, our fair value estimate increases from S$0.63 to S$0.64. 
  • Against Friday’s closing price of S$0.64, FEHT is currently trading at a blended FY16/17 forecasted distribution yield of 6.5%. FEHT’s gearing ratio stands at 32.8%. 
  • Maintain HOLD.

Deborah Ong OCBC Securities | http://www.ocbcresearch.com/ 2016-08-01
OCBC Securities SGX Stock Analyst Report HOLD Maintain HOLD 0.64 Up 0.63