Far East Hospitality Trust - CIMB Research 2016-11-10: Another dull quarter, serviced residences firmer qoq

FAR EAST HOSPITALITY TRUST Q5T.SI

Far East Hospitality Trust - Another dull quarter, serviced residences firmer qoq

9M16 DPU of 3.21 Scts (-6.4% yoy) was broadly in line with our and consensus expectations, forming 74% of our FY16 forecast. 3Q16 DPU was 26%.
Hotel 3Q16 RevPAR was down 5.8% yoy; higher contribution from leisure.
With uplift from Regency House, serviced residences (SR) RevPAU declined at lesser rate of 2.7% yoy in 3Q16 compared to -8.9% in 2Q16.
Expect slower industry recovery. We reduce FY17-18F DPU by 4.1-6.0%.

While 3Q16 results were not encouraging, they did not underwhelm. Maintain Hold, with the stock trading at 0.6x FY16 P/BV and offering FY17 dividend yield of 7%.

In line with other hospitality REITs, FEHT’s 3Q16 performance was, unsurprisingly, listless. That said, SR revenue was firmer qoq.
Led by a 5.8% decline in 3Q16 NPI – hotel RevPAR fell by 5.8% yoy and SR RevPAU declined by 2.7% yoy – 3Q16 DPU correspondingly fell by 6.7% yoy to 1.12 Scts.
Meanwhile, commercial revenue inched up 1.8% qoq but fell 3.7% yoy. Although slightly softer, commercial portfolio occupancy (c.90%) and rental rates continued to hold up (relatively speaking).

In 3Q16, hotel RevPar slid 5.8% yoy to S$151 (9M16 RevPAR: -4.6% yoy).
Average hotel occupancy was 1% pt higher yoy at 88.4%, while ADR was 6.9% yoy lower in 3Q16.
Also, the REIT’s hotels continued to see higher contribution from leisure (contributed 64% of hotel revenue in 3Q16 vs. 59% in 3Q15).
Lastly, Orchard Parade’s common area AEI has been completed and it will be more competitive, in our view. It will embark on room AEI next year, which is expected to be less disruptive.

For 3Q16, SR RevPAU declined 2.7% yoy to S$209 (9M16 RevPAU: -6.7% yoy).
Average SR occupancy was 0.2% pt lower yoy at 90% in 3Q16; and ADR was 2.5% yoy lower.
On a qoq basis, SR fared better (2Q16 RevPAU: -8.9%), mainly driven by higher revenue contribution from Regency House post-renovation.

FEHT expects hotel supply to increase by c.4% in 2016 (c.2,500 new rooms) and expects a similar increase for 2017 (2,500-3,000). We now expect a slower industry recovery, and bake in a 2% yoy decline in FEHT’s hotel RevPAR (prev. +1% yoy).
As 2017 RevPAR is coming off a low-base, we do not expect RevPAR declines to be as steep as 2016. Factoring this, we reduce our FY17-18 DPU by 4.1-6%.

While 3Q16 results were not encouraging, neither did it underwhelm. On the back of the DPU cuts, we lower our DDM-TP to S$0.61.
Maintain Hold with the stock trading at 0.6x FY16 P/BV and FY17 dividend yield of 7% (in line with peers).
Upside/downside hinges on the recovery of Singapore hospitality market. We could also turn more positive in the medium term on any accretive-acquisitions.

YEO Zhi Bin CIMB Research | LOCK Mun Yee CIMB Research | http://research.itradecimb.com/ 2016-11-10

CIMB Research SGX Stock Analyst Report HOLD Maintain HOLD 0.61 Down 0.650