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


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.

What’s New

Revenue and DPU for FY19 in line with our estimates.

  • 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.

Operating performance remained stable; serviced residences and hotels saw resilient demand in 4Q.

  • 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.

Outlook and Covid-19 update: FEHT’s near-term trading uncertainty; rebound anticipated in 2H20

  • 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.

Approximately three quarters of revenue largely fixed in nature

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