Far East Hospitality Trust - CIMB Research 2017-02-22: 4QFY16 difficult to see a recovery in 2017

Far East Hospitality Trust - CIMB Research 2017-02-22: 4QFY16 difficult to see a recovery in 2017 FAR EAST HOSPITALITY TRUST Q5T.SI

Far East Hospitality Trust - 4QFY16 difficult to see a recovery in 2017

  • FEHT's FY16 DPU of 4.33 Scts (-5.9% yoy) was in line with our expectations, at 100% of our full-year forecast. 4Q16 DPU of 1.12 Scts (-4.3% yoy) was at 26%.
  • The 4Q16 results reaffirm our view that a recovery is not likely to happen until 2018.
  • For FY16, hotel RevPAR declined 5.3% yoy to S$139. Serviced residences’ RevPAU decreased 5.8% yoy to S$189.
  • We reduce our FY17-18F DPU by 1.8-2.4% on lower RevPAR assumptions. We also introduce our FY19F forecast.
  • Unabated new supply would continue to weigh on RevPAR in 2017. Reiterate Hold with a slightly higher DDM-TP as we roll forward our valuations.

4Q16 results underscore our view 

  • The 4Q16 results reaffirm our view that the green shoots of recovery for the hospitality sub-sector will only appear in 2018. 4Q16’s revenue and NPI fell 4.6% yoy and 5.4% yoy, respectively, due to reduced contributions from hotels and serviced residences (SR) and softer retail and office revenue. As a result, distributable income and DPU dropped 2.3% yoy and 4.3% yoy, respectively. 
  • Dragged largely by Village Hotel Changi (factoring in weaker operating performance), the trust made a devaluation loss of S$29.5m.

Hotel RevPAR declined 5.3% yoy to S$139 for FY16 

  • Hotels' 4Q16 RevPAR fell 7.3% yoy in 4Q16, roughly in line with the shaper contraction experienced by peers in the quarter. 
  • For 2016, hotels' RevPAR declined 5.3% yoy to S$139. FY16 occupancy of 87% (+1.6% pts yoy) was achieved on the back of cuts in average daily rates (-7% yoy to S$159). 
  • The trust could commence phase three AEI of Orchard Parade (refurbishment of guest rooms) in 2Q17. 
  • Construction of the 30%-held Outpost Hotel Sentosa and Village Hotel Sentosa is on-budget and expected to be completed in 2019.

Serviced Residences’ RevPAU decreased 5.8% yoy to S$189 for FY16 

  • SR's 4Q16 RevPAU declined 2.3% yoy, marginally better than ART's c.5% yoy decline in the quarter. 
  • Boosted by the completion of AEI at Regency House, average daily rate (ADR) inched up 1.2% yoy. 
  • For 2016, SR's RevPAU fell 5.8% yoy to S$189. Occupancy dropped 2% pts yoy to 85% while ADR declined 3.6% yoy to S$222. Corporate demand remained soft, with the segment contributing to 85% of revenue in 4Q16 vs. c.90% a year ago.

Capital management 

  • As at end-16, FEHT’s gearing stood at 32.1%. Average cost of debt was 2.5% (flattish qoq), with 71% of borrowings hedged at a fixed interest rate. 
  • A relatively higher debt tower of S$292m is due in 2017, of which, the manager has refinanced S$250m of term loans into 4- and 7-year loans. Documentation work was completed in Jan 17 and the loans are expected to be drawn down in Mar 17.

Reiterate Hold on continued RevPAR pressure 

  • In terms of acquisition outlook, the trust is monitoring Oasia Downtown as the asset stabilises. 
  • With a 5.8% yoy increase in room supply for 2017 (vs. +4.3% yoy in 2016) and lacklustre corporate demand, we expect RevPARs of our hospitality coverage to further edge downwards for 2017, but at a smaller magnitude vs. 2016. Hence, we maintain Hold and a slightly higher DDM-TP (S$0.57) as we roll forward our valuations.
  • Upside/downside risks hinge on the pace and magnitude of a recovery in the sub-sector.

YEO Zhi Bin CIMB Research | LOCK Mun Yee CIMB Research | http://research.itradecimb.com/ 2017-02-22
CIMB Research SGX Stock Analyst Report HOLD Maintain HOLD 0.57 Up 0.560