Far East Hospitality Trust - DBS Research 2019-04-25: Challenging Start To The Year


Far East Hospitality Trust - Challenging Start To The Year

  • Far East Hospitality Trust's 1Q19 DPU of 0.91 Scts (-3% y-o-y) below expectations.
  • Weaker results on modest RevPAR performance with drag from higher borrowing costs and recent DRP.
  • Near-term disappointment but multi-year upturn intact due to limited supply.
  • Maintain BUY, Target Price of S$0.70.

What’s New

1Q19 DPU down 3% y-o-y

  • FAR EAST HOSPITALITY TRUST (SGX:Q5T) reported weaker-than-expected results with 1Q19 DPU down 3.2% y-o-y to 0.91 Scts. This represented only c.22% of our FY19F DPU. The softer performance was largely due to flattish revenue RevPAR performance for the hotel and service residence portfolios as compared to our original estimate of an increase on the back of limited supply.
  • Nevertheless, based on the STB statistics, we had earlier highlighted downside risk to market estimates as the upscale and mid-tier hotels were reported to have seen a 5% and 2% y-o-y decline respectively in revenue per available room (RevPAR) for the first two months of 2019.
  • We understand Far East Hospitality Trust’s portfolio was impacted by weaker corporate demand on the back of fewer major events in Singapore such as the airshow and companies continuing to curtail business travel spending.
  • For the hotel portfolio, 1Q19 RevPAR rose 0.7% y-o-y to S$140 with 1.1% y-o-y increase in average daily rate (ADR) to S$157 offsetting a 0.4-ppt drop in occupancy to 89.2%. Stripping out the impact of Oasia Downtown, we understand RevPAR for Far East Hospitality Trust’s original portfolio would have fallen 3.0% y-o-y.
  • Meanwhile, 1Q19 RevPAR for the serviced residences was flat y-o-y at S$174 with 1.3% y-o-y lift in ADR to S$217, mitigated by a 1.1-ppt fall in occupancy to 80.2%.
  • Far East Hospitality Trust's 1Q19 DPU was also impacted by higher borrowing costs and 2% higher number of units on issue post the distribution reinvestment plan.
  • Overall, Far East Hospitality Trust reported an 8% and 9% y-o-y increase in 1Q19 revenue and NPI to S$27.8m and S$25.1m respectively, largely due to the impact of the acquisition of Oasia Downtown which was only completed in April 2018.
  • Share of results of joint venture related to Far East Hospitality Trust’s 30% interest in the Outpost and Village properties reported a S$2.4m loss. However, this does not impact Far East Hospitality Trust’s DPU as it is a non-cash item.

Stable gearing

  • Gearing remains stable at around 40% with average cost of debt increasing to 2.9% from 2.7% as at end-4Q19.
  • The proportion of fixed-rate debt increased marginally to 69.5% from 63.8% previously.
  • Net asset per unit now stands at S$0.87.

Maintain BUY, Target Price of S$0.70

  • While 1Q19 results were below expectations and there is downside risk to our estimates if RevPAR remains soft heading into 2Q19, we maintain our BUY call and Target Price of S$0.70 on the back of attractive valuations.
  • Far East Hospitality Trust offers c.6% yield and the implied price per key of its portfolio stands at c.S$700,000 which is below recent market transactions in excess of S$1m.
  • Furthermore, with limited new supply over the next few years, we believe the multi-year expected upturn in the Singapore hospitality market remains intact with Far East Hospitality Trust being a key beneficiary.

Mervin SONG CFA DBS Group Research | Derek TAN DBS Research | Carmen TAY DBS Research | https://www.dbsvickers.com/ 2019-04-25
SGX Stock Analyst Report BUY MAINTAIN BUY 0.700 SAME 0.700