Far East Hospitality Trust - OCBC Investment 2019-04-25: Challenging First Few Months


Far East Hospitality Trust - Challenging First Few Months

Results on lower end of expectations

  • FAR EAST HOSPITALITY TRUST (SGX:Q5T) posted results that were within expectations albeit on the lower end. 1Q19 gross revenue increased 8.0% to S$27.8m while NPI grew 9.0% to S$25.0m, mainly due to the contribution from Oasis Hotel Downtown (OHD).
  • Income available for distribution was down 1.2% to S$17.4m. The decline was due to an increase in finance costs, which was in turn a result of additional debt being drawn to fund the Oasis Hotel Downtown acquisition as well as higher short term interest rates.
  • With an enlarged base, Far East Hospitality Trust's 1Q19 DPU was down 3.2% to 0.91 S cents or 22.4% of our initial full-year forecast and 21.7% of consensus’s full-year forecast. As a reference, 1Q18 DPU contributed 23.5% to the full-year DPU.

Excluding OHD, portfolio RevPAR likely came in at -3%

  • In our last report, we noted data points pointing to a soft quarter for Singapore RevPARs. For hotels, Far East Hospitality Trust'’s 1Q19 RevPAR was up 0.7% on the back of a 1.1% higher ADR and a -0.4 ppt lower AOR. Contribution from the corporate segment was lower at 30.4% (33.1% in 1Q18) due to the absence of the Singapore Airshow that was held in 1Q18. Companies also remained cautious with business travel spending.
  • Note that this quarter’s RevPAR growth figure is skewed by the inclusion of Oasis Hotel Downtown in the portfolio. Without Oasis Hotel Downtown, we estimate that the RevPAR growth for the rest of the portfolio came in closer to -3%. For Serviced Residences, RevPAU was flat y-o-y, with management noting that the corporate demand remained subdued.
  • Looking ahead, we believe April will continue to be challenging for Singapore hotels on a y-o-y basis, given the absence of Food&HotelAsia (FHA) 2018. RevPARs in 2H19 look to be more promising relative to 1H, especially if the pace of growth in tourist arrivals picks up.

Underperformed STI by 4% since our 15 Apr downgrade

  • Since our 15 Apr downgrade report (Far East Hospitality Trust - Take A Break) till 24 Apr’s close, Far East Hospitality Trust' has posted total returns of -2.9% vs. the Straits Times Index’s (STI) 1.1% and the FTSE Straits Times REIT Index’s (FSTREI) -0.5%.
  • As at 24 Apr’s close, Far East Hospitality Trust' is trading at a yield of 5.9% for FY19F. As a comparison, ASCOTT RESIDENCE TRUST (SGX:A68U) and CDL HOSPITALITY TRUSTS (SGX:J85) are trading at FY19F yields of 5.9% and 5.8% respectively, based on our own forecasts.
  • Using Bloomberg consensus figures, Far East Hospitality Trust'’s blended forward 12m yield is at 6.3%, or ~0.6 standard deviation below its 5 year average. We pare down our RevPAR growth assumptions for the year. Using a lower risk-free rate of 2.3% (2.7% previously) as well as a lower mature state growth rate of 1.75% (2.0% previously), our fair value dips from S$0.68 to S$0.67.
  • We note that Far East Hospitality Trust'’s gearing has improved slightly from 40.1% as at end-Dec 2018 to 39.9% as at end-1Q19. Management is working to decrease gearing to below 39% by the end of the year, with the help of the Distribution Reinvestment Plan. 69.5% of the debt is fixed and there are no other term loans maturing this year.
  • We maintain HOLD on Far East Hospitality Trust.

Deborah Ong OCBC Investment Research | https://www.iocbc.com/ 2019-04-25
SGX Stock Analyst Report HOLD MAINTAIN HOLD 0.67 DOWN 0.680