Far East Hospitality Trust - OCBC Investment 2019-07-31: A Weak Set Of Results

SGinvestors.io

FAR EAST HOSPITALITY TRUST (SGX:Q5T)

Far East Hospitality Trust - A Weak Set Of Results 

• Far East Hospitality Trust's 2Q19 DPU down 9.9% y-o-y.
• 2H appears to be brighter, so far.
• Adjusted our forecasts downwards.

Results missed expectations

• FAR EAST HOSPITALITY TRUST (SGX:Q5T) posted a weak set of results that were below expectations.
• 2Q19 gross revenue dropped 2.1% y-o-y to S$27.9m, while NPI dropped 2.4% y-o-y to S$25.1m. Due to lower NPI and 10.9% higher finance expenses, 2Q19 DPU dropped 9.9% y-o-y to 0.91 S cents, coming up to 23.1% of our initial full-year forecast. As at 30 Jun 2019, the average cost of debt was 2.9%, vs. 2.5% as at 30 Jun 2018.

Hotel RevPAR down 4.5% y-o-y while SR RevPAU up 3.0% y-o-y

• As expected, Far East Hospitality Trust’s hotel RevPAR was soft this quarter, though the decline was steeper than we had forecasted. Hotel RevPAR dropped 4.5% y-o-y to S$156 on the back of 2.6% lower ADR and 1.7ppt lower average occupancy for the quarter. The decline was attributed to the absence of major events during the quarter and softness in corporate demand.
• Meanwhile, Far East Hospitality Trust’s serviced residences RevPAU improved 3.0% y-o-y to S$174 contributed by a 5.0% higher ADR, partially offset by 1.6 ppt lower average occupancy. This RevPAU stabilization was attributed to a growth of shorter-stay bookings at higher ADRs.

Fair value remains at S$0.67

• Looking ahead, we note that the REIT manager of CDL Hospitality Trusts (CDLHT, SGX:J85) disclosed that CDLHT’s SG RevPAR grew 4.1% y-o-y for the first 28 days of Jul 2019. While we note that Far East Hospitality Trust’s SG hotels have underperformed CDLHT’s SG hotels this past quarter in terms of RevPAR growth, the statistic suggests a potentially brighter 3Q19 for the SG portfolios of both REITs. In addition, we see Far East Hospitality Trust’s 2Q19 positive RevPAU growth as a sign that the segment is turning around.
• After adjusting our DPU forecasts downwards and decreasing our risk-free rate from 2.3% to 2.0%, our fair value remains at S$0.67. Based on our own forecasts, Far East Hospitality Trust is trading with a FY19F yield of 5.6%, as at 30 Jul’s close.
• Maintain HOLD.

OCBC Research Team OCBC Investment Research | https://www.iocbc.com/ 2019-07-31

SGX Stock Analyst Report HOLD MAINTAIN HOLD 0.670 SAME 0.670