Far East Hospitality Trust - CGS-CIMB Research 2020-02-14: Bracing For The Impact Of Covid-19 Outbreak

FAR EAST HOSPITALITY TRUST (SGX:Q5T)

Far East Hospitality Trust - Bracing For The Impact Of Covid-19 Outbreak

Far East Hospitality Trust's FY19 DPU of 3.81 Scts (-4.8% y-o-y) was in line with our forecast.
Hotel RevPAR down 1.3% y-o-y partially offset by +2.7% RevPAU from SR.
Maintain HOLD as Far East Hospitality Trust braces for the impact from the Covid-19 outbreak.

Far East Hospitality Trust (SGX:Q5T)’s FY19 DPU of 3.81Scts (-4.8% y-o-y) was in line at 98% of our full-year forecast of 3.89Scts. Although full-year revenue and NPI improved 1.6% y-o-y and 1.5% y-o-y to S$113.7m and S$104.3m respectively, net income before tax and fair value changes declined 3.5% to S$61.3m, mainly due to higher interest expense on higher borrowings.
The stronger full-year revenue was mainly driven by the better 9MFY19 results, as 4Q was flat y-o-y.
FY19 DPU declined at a larger magnitude of 4.8% due to the enlarged share base with the dividend reinvestment plan.

Full-year FY19 hotel revenue increased 1.9% y-o-y to S$80m, driven by the acquisition of Oasia Downtown completed in Apr 2018. Full-year RevPAR however declined 1.3% y-o-y to S$144 on lower ADR (-1.3% y-o-y) due to lower contribution from the corporate segment and higher composition of the leisure segment.
The 1H19 was weaker than the 2H19 as the hotel portfolio did not have the benefit in the first-half year of demand brought about by major biennial and one-off city-wide events in Singapore as compared to 1H18 while stronger leisure demand contributed to a better 2H19.
Far East Hospitality Trust’s FY19 RevPAR growth was slightly below when compared to the industry’s 11M2019 RevPAR growth of +1.9%.

Far East Hospitality Trust’s serviced residence (SR) segment did better than its hotel segment with RevPAU growing by 2.7% y-o-y to S$177. While occupancy declined 0.6% pts y-o-y to 84%, average daily rate improved 3.4% to S$210 due to continued growth in shorter-stay bookings at higher room rates.
Having said that, longer stay bookings ( > 1 month) still accounted for more than 75% of total bookings. Its serviced residence has been reporting positive y-o-y RevPAU growth since 2Q2019.

Since the Covid-19 outbreak hit Singapore. Far East Hospitality Trust’s occupancy rate has declined by 20- 30% pts but remained above the estimated industry occupancy rate of 50-60%. In a worst-case scenario, Far East Hospitality Trust’s revenue would decline to its master lease minimum rent.
In FY19, fixed rent and commercial space income accounted for 77% of its total revenue. Far East Hospitality Trust is planning to take the opportunity to do AEIs during this period (slowdown from virus outbreak) and this could include possible divestment.
We maintain HOLD on Far East Hospitality Trust as we see limited catalysts for the stock as the REIT braces for the impact from the virus outbreak. We make slight changes to our FY20-21F DPU as we update for full-year numbers.
See Far East Hospitality Trust Share Price; Far East Hospitality Trust Target Price; Far East Hospitality Trust Analyst Reports; Far East Hospitality Trust Dividend History; Far East Hospitality Trust Announcements; Far East Hospitality Trust Latest News.
Upside/down risks include weaker/stronger impact from Covid-19 outbreak.

EING Kar Mei CFA CGS-CIMB Research | LOCK Mun Yee CGS-CIMB Research | https://www.cgs-cimb.com 2020-02-14

SGX Stock Analyst Report HOLD MAINTAIN HOLD 0.65 UP 0.640