Far East Hospitality Trust - DBS Research 2020-02-14: 4Q19 In Line; Near-term Uncertainty Persists

FAR EAST HOSPITALITY TRUST (SGX:Q5T)

Far East Hospitality Trust - 4Q19 In Line; Near-term Uncertainty Persists

DPU of 3.83 Scts was in line with our estimates.
Business as usual in the past quarter; healthy occupancies for hotels and serviced residences maintained.
Expect downside to RevPAR in the near term to cap share price performance.

Far East Hospitality Trust (SGX:Q5T)'s full-year results were all in line with our estimates.
Full-year revenue of S$115.6m (+1.6% y-o-y) and NPI of S$104.3m (+1.5% y-o-y) made up 100% of our forecasts at S$115m and S$104m respectively.
Income available for distribution for the year dipped 2.0% y-o-y to S$73.9, with impact flowing through to DPS.
DPS for FY19 of 3.81 Scts was a 4.8% decline y-o-y, impacted by an enlarged unit base, but still came in line with our estimates of 3.83 Scts.
Financial metrics were within expectations with gearing at 39.2%, above sector average.
Weighted average cost of debt stood at 2.9% (c.66% fixed) with a WADE of 3.3 years.

Serviced residences performed better in 2019, with RevPAR increasing 2.7% y-o-y to S$182, on the back of a higher ADR (+3.4% y-o-y) and flattish occupancy (-0.6% y-o-y).
This was bolstered by the growth in shorter-stay bookings at higher room rates.
Hotel performance was largely flat, with RevPAR declining 1.3% to S$142, attributable to a 1.3% dip in ADR to S$160.
The overall health of Far East Hospitality Trust’s portfolio was maintained with hotel and serviced residence occupancies at 89.1% and 83.7% respectively in 2019.
Revenue breakdown by segment remained largely unchanged at 69.2% for hotels, 11.8% for served residences and 19.0% for commercial.

Cautious sentiment shrouding hoteliers in Singapore as a result of the coronavirus outbreak is likely to affect Far East Hospitality Trust’s DPU performance this year.
In view of Far East Hospitality Trust’s exposure to the Singapore market only and c.70% exposure to hotels by gross revenue, we believe Far East Hospitality Trust’s operations would be adversely impacted especially in the near term.
Moreover, about two-thirds of hotel revenue is generated from leisure/independent travellers, who we think will be hit harder than corporate travellers. That said, the latter group may also postpone their travel plans given the current advisories against business travel.
Rebound will likely be in 2H20, with a softer 1H20 expected, with reference to the 2003 SARS outbreak, which lasted approximately five months.

However, we expect impact to be mitigated by revenue contributions from commercial premises, which are locked in under longer lease tenures and fixed rents built within the master leases for the hotel and service residence segment.
Based on our estimates, downside to revenue is mitigated by having
1. commercial component contributing to c.19% to revenue (one-third of which are office space with some F&B exposure in the remaining two-thirds) and
2. fixed rents from master leases contributing c.58% of revenue.
This implies that c.77% of Far East Hospitality Trust’s FY20 revenues are likely to be sticky. While we expect weakness in underlying operational performance, the impact is limited to only c.23% of total revenue, which is variable in nature
We are keeping our estimates for now but do see downside depending on how protracted this COVID-19 epidemic is.
HOLD call maintained with Target Price unchanged at S$0.69, pegged to 0.85% P/NAV, in line with its historical mean.
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.

Derek TAN DBS Group Research | Singapore Research Team DBS Research | https://www.dbsvickers.com/ 2020-02-14

SGX Stock Analyst Report HOLD MAINTAIN HOLD 0.690 SAME 0.690