Far East Hospitality Trust (FEHT) reported a subdued set of 2Q15 results which fell slightly short of our expectations. Gross revenue decreased 3.0% YoY to S$28.7m, while DPU slipped 6.5% to 1.16 S cents. The influx of new hotel rooms, softer demand from an uncertain macroeconomic landscape and muted rental property market have culminated in a decline in FEHT’s RevPAR and RevPAU, despite higher occupancy rates. We pare our FY15 and FY16 DPU forecasts by 4.7% and 3.6%, respectively, on lower NPI margin and higher finance expense assumptions. Given the headwinds impacting Singapore’s hospitality industry, we also lower our terminal growth rate assumption from 2% to 1%. Consequently, our fair value is reduced from S$0.77 to S$0.67. Despite FEHT’s recent share price correction, we believe it is still too early to turn positive on the stock given the challenging near-term outlook and weak earnings visibility. Maintain HOLD.
2Q15 results slightly below our expectations
Far East Hospitality Trust (FEHT) reported a subdued set of 2Q15 results which fell slightly short of our expectations. Gross revenue decreased 3.0% YoY to S$28.7m due to weaker performance from both its Hotels and Serviced Residences (SR) segments. Coupled with higher interest expenses, FEHT’s DPU slipped 6.5% YoY to 1.16 S cents, although this was an improvement of 8.4% on a QoQ basis. For 1H15, gross revenue was down 6.9% to S$56.1m and this formed 47.0% of our FY15 forecast. DPU of 2.23 S cents represented a decline of 12.2% and constituted 45.8% of our below-consensus full-year projection.
Competitive pressures have affected average room rates
The influx of new hotel rooms, softer demand from an uncertain macroeconomic landscape and muted rental property market have culminated in a 2.1% and 5.1% YoY dip in RevPAR and RevPAU to S$147 and S$207 for FEHT’s Hotels and SR portfolio in 2Q15, respectively. Although occupancy was firm (+6.6 ppt to 86.7% for Hotels and +2.1 ppt to 89.3% for SR) due to management’s concerted efforts to attract more clients, this came at the expense of offering more competitive rates. FEHT’s average daily rate (ADR) for its Hotels slumped 9.6% YoY to S$170, while that of SR was down 7.3% to S$231. During the quarter, there was some positive impact from the SEA Games, as RevPAR for FEHT’s official accommodation hotel increased 10% in Jun as compared to its usual run-rate.
Lower FV but maintain HOLD
The estimated new supply of hotels coming on-stream this year has been increased from 3,331 to 4,272, largely due to the earlier-than-expected completion of Hotel Boss. We pare our FY15 and FY16 DPU forecasts by 4.7% and 3.6%, respectively, on lower NPI margin and higher finance expense assumptions. Given the headwinds impacting Singapore’s hospitality industry, we also lower our terminal growth rate assumption from 2% to 1%. Consequently, our fair value is reduced from S$0.77 to S$0.67. Despite FEHT’s recent share price correction, we believe it is still too early to turn positive on the stock given the challenging near-term outlook and weak earnings visibility. Maintain HOLD.
Far East Hospitality Trust (FEHT) reported a subdued set of 2Q15 results which fell slightly short of our expectations. Gross revenue decreased 3.0% YoY to S$28.7m due to weaker performance from both its Hotels and Serviced Residences (SR) segments. Coupled with higher interest expenses, FEHT’s DPU slipped 6.5% YoY to 1.16 S cents, although this was an improvement of 8.4% on a QoQ basis. For 1H15, gross revenue was down 6.9% to S$56.1m and this formed 47.0% of our FY15 forecast. DPU of 2.23 S cents represented a decline of 12.2% and constituted 45.8% of our below-consensus full-year projection.
Competitive pressures have affected average room rates
The influx of new hotel rooms, softer demand from an uncertain macroeconomic landscape and muted rental property market have culminated in a 2.1% and 5.1% YoY dip in RevPAR and RevPAU to S$147 and S$207 for FEHT’s Hotels and SR portfolio in 2Q15, respectively. Although occupancy was firm (+6.6 ppt to 86.7% for Hotels and +2.1 ppt to 89.3% for SR) due to management’s concerted efforts to attract more clients, this came at the expense of offering more competitive rates. FEHT’s average daily rate (ADR) for its Hotels slumped 9.6% YoY to S$170, while that of SR was down 7.3% to S$231. During the quarter, there was some positive impact from the SEA Games, as RevPAR for FEHT’s official accommodation hotel increased 10% in Jun as compared to its usual run-rate.
Lower FV but maintain HOLD
The estimated new supply of hotels coming on-stream this year has been increased from 3,331 to 4,272, largely due to the earlier-than-expected completion of Hotel Boss. We pare our FY15 and FY16 DPU forecasts by 4.7% and 3.6%, respectively, on lower NPI margin and higher finance expense assumptions. Given the headwinds impacting Singapore’s hospitality industry, we also lower our terminal growth rate assumption from 2% to 1%. Consequently, our fair value is reduced from S$0.77 to S$0.67. Despite FEHT’s recent share price correction, we believe it is still too early to turn positive on the stock given the challenging near-term outlook and weak earnings visibility. Maintain HOLD.
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