Far East Hospitality Trust - CGS-CIMB Research 2019-04-25: A Slow Start


Far East Hospitality Trust - A Slow Start

  • Far East Hospitality Trust's 1Q19 DPU of 0.91 Scts was slightly below at 21.2% of our FY19 forecast.
  • Weaker corporate segment was a drag on hotel performance.
  • Maintain ADD with a slightly higher Target Price of S$0.71.

FEHT's 1Q19 results highlights

  • FAR EAST HOSPITALITY TRUST (SGX:Q5T)’s 1Q19 DPU of 0.91 Scts, -3.2% y-o-y, was slightly below our expectations, at 21.2% of our FY19F forecast.
  • Distributable income fell 1.2% y-o-y to S$17.4m, despite an 8%/9% y-o-y improvement in gross revenue/net property income due to higher finance costs post acquisition of Oasia Hotel Downtown and higher-than-projected share of losses in a joint venture.
  • Pre-opening expenses and finance costs on borrowings for the development of the jointly-owned Village Hotel at Sentosa and The Outpost Hotel at Sentosa, previously capitalised, were expensed out following the completion of these hotels in Oct 18.

Weaker corporate segment a drag on hotel performance

  • Hotel RevPar grew 0.7% y-o-y to S$140 in 1Q19, aided by a 1.1% increase in average room rates, partly offset by a 0.4%-pt dip in occupancy to 89.2%. While there was an increase in visitor arrivals to Singapore, weaker corporate segment due to fewer major events dragged the take-up rate.
  • Revenue contribution from the corporate segment slipped 2.7% pt q-o-q and made up 30.4% of hotel revenue in 1Q19.

Service residence operations were stable

  • Serviced residence RevPau remained flat y-o-y at S$174 in 1Q19 as the 1.3% y-o-y improvement in average daily rates was offset by a 1.1%-pt decrease in average occupancy to 80.2%. Management indicated that although the corporate segment remained subdued, there was healthy growth from some sectors such as banking & finance, services and FMCG industries.
  • Revenue from corporate accounts dipped to 71.2% (from 73.3% in 4Q18) while an increase in online bookings resulted in a larger contribution from the leisure segment.

Maintaining modest Revpar growth outlook for 2019

  • Management remains cautiously optimistic on the outlook for its hotel business for the remainder of this year due to limited new supply; it maintained its guidance for 3-4% industry RevPar growth, in tandem with our 3% growth assumption for Far East Hospitality Trust. It expects the serviced residence segment to remain stable.
  • In addition, we believe, as the Village Hotel and The Outpost hotels in Sentosa ramp up, the drag on earnings would likely weaken in the medium term.

Maintain ADD

  • We leave our FY19-21 DPU estimates unchanged but raise our DDM-based Target Price slightly to S$0.71 on lower cost of equity assumption as we reduce our risk free rate base due to a more benign interest rate outlook.
  • Upside risks include accretive acquisitions with a lower gearing of 39.9% at end-1Q19 while downside risks include worse-than-expected performances from the hotel and serviced residence segments.

EING Kar Mei CFA CGS-CIMB Research | LOCK Mun Yee CGS-CIMB Research | https://research.itradecimb.com/ 2019-04-25
SGX Stock Analyst Report ADD MAINTAIN ADD 0.71 UP 0.680