Friday 10 May 2013

Far East Hospitality Trust

OCBC on 9 May 2013

Far East Hospitality Trust (FEHT) reported 1Q13 results that were in line with ours and the street’s expectations. Compared to forecast numbers in its prospectus, 1Q13 gross revenue at S$28.1m was 4.2% lower. DPU of 1.38 S cents is 3.0% higher than the 1.34 S cents forecasted, chiefly due to lower finance costs and other trust expenses. 1Q13 hotel RevPAR at S$161 was comparable to 1Q12 (S$162), and reasonably good given the soft 1Q13 for the industry, which saw RevPAR fall 3%.
Adjusting our FY13F revenue assumptions downwards slightly, our RNAV-based fair value falls from S$1.05 to S$1.01 and we maintain a HOLD rating on FEHT. We estimate a FY13 yield of 5.4%.

Lower finance costs
Far East Hospitality Trust (FEHT) reported 1Q13 results that were generally in line with ours and the street’s expectations. Compared to forecast numbers in its prospectus, 1Q13 gross revenue at S$28.1m was 4.2% lower. NPI at S$26.0m was also 1.7% lower than the forecast. Income available for distribution at S$22.1m, however, was 2.0% higher than forecast, chiefly due to lower finance costs and other trust expenses. DPU of 1.38 S cents is 3.0% higher than the 1.34 S cents forecasted and forms 23% of our FY13 estimate of 6.0 S cents.

Better performance than industry
1Q13 hotel RevPAR at S$161 was comparable to 1Q12 (S$162) but missed the forecast by 6.9% due to weak ADR. Upscale hotels Quincy and Orchard Parade Hotel continue to face more pressure than the mid-tier hotels. Corporate travel grew slower than expected, although management is seeing a pick-up for late 2Q13. FEHT's hotels performed reasonably well given the soft 1Q13 for the industry, which saw RevPAR fall 3%. For the serviced residences, RevPAU of S$219 was comparable to forecast of S$221, and on a YoY basis, actually grew 6.3% YoY. 

AEIs working
The upgrade of rooms at Landmark Village Hotel and Orchard Parade Hotel has been recently completed and management sees the ADR of newly renovated rooms growing by S$15-20 a night. There are upgrades planned for Albert Court Village Hotel and Regency House. Changi Village Hotel, which is experiencing weakness from new competition in the vicinity, is undergoing soft refurbishment. Furthermore, FEHT is expected to complete the acquisition of Grand Hotel Rendezvous by Aug 2013. 

Maintain HOLD
Adjusting our FY13F revenue assumptions downwards slightly, our RNAV-based fair value falls from S$1.05 to S$1.01 and we maintain a HOLD rating on FEHT. We estimate a FY13 yield of 5.4%.

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