Far East Hospitality Trust - OCBC Investment 2016-11-11: Look out for inorganic growth

Far East Hospitality Trust - OCBC Investment 2016-11-11: Look out for inorganic growth FAR EAST HOSPITALITY TRUST Q5T.SI

Far East Hospitality Trust - Look out for inorganic growth

  • 3Q results within expectations.
  • Proj. 3.5% RevPAR decline for FY17.
  • Fair value now at S$0.62.

3Q16 results within expectations 

  • Far East Hospitality Trust’s (FEHT) 3Q16 results were consistent with our expectations, with 9M16 revenue and DPU making up 74.5% and 75.4% of our FY16 forecast respectively. 
  • 3Q16 gross revenue fell 5.5% YoY to S$28.0m while 3Q distributable income fell 6.0% to S$20.3m, amidst weakness in corporate travel demand. As a result, 3Q DPU dropped 6.7% YoY to 1.12 S cents.

Serviced Residences relatively resilient 

  • 3Q16 AOR of the hotel portfolio was 1.0 ppt higher YoY at 88.4% while ADR declined 6.9% to S$161, resulting in a 5.8% decline in RevPAR to S$142. For hotels, the lower-rate leisure segment contributed 63.7% of hotel revenue in 3Q16, up 4.8 ppt from 3Q15. 
  • 3Q AOR and ADR for Serviced Residences (SRs) declined by 0.2 ppt YoY to 90.0% and 2.5% YoY to S$226 respectively, resulting in a 2.7% decline in RevPAU to S$203. 
  • A decrease in revenue contribution from Service-related business (e.g. HQ admin, accounting, law, advertising, etc.) was partially compensated by growth in Banking & Finance and Electronics & Manufacturing. For SRs, the corporate segment contributed 83.5% of revenue, 1.0 ppt more than a year ago.

Fine-tune FY16/FY17 growth assumptions 

  • While prospects for organic growth look muted, we note that the REIT manager is looking out for potential acquisitions, particularly assets from the Sponsor such as Oasia Downtown. 
  • On feedback that Oct was a relatively bad month for hotels, we pare down our expectations for 4Q16. As a result, FY16 hotel RevPAR is now expected to drop 5.6% YoY (vs. a 4.5% decline previously).
  • Encouraged by improved contributions from Regency House post-renovation, our FY16 SR RevPAU is now projected to fall 5.7% YoY (vs. a 6.0% decline previously). This results in our FY16 DPU forecast falling by 0.9% to 4.22 S cents. 
  • We are also more bearish on FY17, and project a 3.5% drop in hotel RevPAR (from a 2.0% drop previously). Our fair value dips marginally from S$0.64 to S$0.62. 
  • Against yesterday’s closing price of S$0.600, FEHT is currently trading at a blended FY16/17 forecasted distribution yield of 6.8%. FEHT’s gearing ratio remains at 32.8%. 
  • Maintain HOLD.

Deborah Ong OCBC Investment | http://www.ocbcresearch.com/ 2016-11-11
OCBC Investment SGX Stock Analyst Report HOLD Maintain HOLD 0.62 Down 0.640