Far East Hospitality Trust (FEHT) reported a lacklustre set of 4Q14 results, although this was within our expectations. Gross revenue and DPU dipped 9.8% and 9.9% to S$30.3m and 1.28 S cents, respectively. RevPAR for its Hotel portfolio fell 8.0% YoY to S$153 in 4Q14, while its Serviced Residences segment also suffered a 7.8% YoY fall in RevPAU to S$208. We believe demand and supply dynamics remain unfavourable for the hospitality sector in the near-term. We pare our FY15 gross revenue and DPU forecasts by 0.5% and 2.0%, respectively, and introduce our FY16 projections. But as we roll forward our valuation, which captures contribution from FEHT’s joint venture hotel development project at Sentosa, this raises our fair value estimate from S$0.80 to S$0.82. Given the limited total potential returns of 2.6%, we maintain HOLD on FEHT.
A multitude of factors impacted FY14 performance
Far East Hospitality Trust (FEHT) reported a lacklustre set of 4Q14 results, although this was within our expectations. Gross revenue and DPU dipped 9.8% and 9.9% to S$30.3m and 1.28 S cents, respectively. Topline was impacted by a multitude of factors, such as softer demand from corporate travellers, strong SGD, competitive pressures from higher hotel room supply and regulation on outbound travel in China. This resulted in a 3.6 ppt YoY decline in its Hotel portfolio average occupancy to 82.4% and a 4.0% drop in average daily rate (ADR) to S$186, thus translating into a 8.0% dip in RevPAR to S$153. Its Serviced Residences segment also suffered a 7.8% YoY fall in RevPAU to S$208 due to lower occupancy (-6.3 ppt to 83.2%) and ADR (-0.8% to S$250). For FY14, FEHT’s gross revenue slipped 0.6% to S$121.7m and formed 98.1% of our full-year forecast. DPU of 5.14 S cents represented a decline of 8.9%, but was in-line with our projection of 5.2 S cents. A S$6.7m decline in the fair value of its investment properties was recorded, due to higher cap rate assumptions (+25-50 bps) adopted by the valuers on FEHT’s hotels.
Near-term headwinds remain
We believe demand and supply dynamics remain unfavourable for the hospitality sector in the near-term. The macroeconomic environment reflects continued uncertainties, while 2,960 additional hotel rooms are expected to come on-stream in 2015. According to figures just released by STB, Singapore’s visitor arrivals suffered a 3.1% drop in 2014 to 15.1m, missing its projection of 16.3m-16.8m (announced in 1Q14). Against this challenging backdrop, FEHT has undertaken asset enhancement works on at least four of its assets (capex of S$5m-S$7m) this year to increase their competitiveness.
Maintain HOLD
We pare our FY15 gross revenue and DPU forecasts by 0.5% and 2.0%, respectively, and introduce our FY16 projections. But as we roll forward our valuation, which captures contribution from FEHT’s joint venture hotel development project at Sentosa, this raises our fair value estimate from S$0.80 to S$0.82. Given the limited total potential returns of 2.6%, we maintain HOLD on FEHT.
Far East Hospitality Trust (FEHT) reported a lacklustre set of 4Q14 results, although this was within our expectations. Gross revenue and DPU dipped 9.8% and 9.9% to S$30.3m and 1.28 S cents, respectively. Topline was impacted by a multitude of factors, such as softer demand from corporate travellers, strong SGD, competitive pressures from higher hotel room supply and regulation on outbound travel in China. This resulted in a 3.6 ppt YoY decline in its Hotel portfolio average occupancy to 82.4% and a 4.0% drop in average daily rate (ADR) to S$186, thus translating into a 8.0% dip in RevPAR to S$153. Its Serviced Residences segment also suffered a 7.8% YoY fall in RevPAU to S$208 due to lower occupancy (-6.3 ppt to 83.2%) and ADR (-0.8% to S$250). For FY14, FEHT’s gross revenue slipped 0.6% to S$121.7m and formed 98.1% of our full-year forecast. DPU of 5.14 S cents represented a decline of 8.9%, but was in-line with our projection of 5.2 S cents. A S$6.7m decline in the fair value of its investment properties was recorded, due to higher cap rate assumptions (+25-50 bps) adopted by the valuers on FEHT’s hotels.
Near-term headwinds remain
We believe demand and supply dynamics remain unfavourable for the hospitality sector in the near-term. The macroeconomic environment reflects continued uncertainties, while 2,960 additional hotel rooms are expected to come on-stream in 2015. According to figures just released by STB, Singapore’s visitor arrivals suffered a 3.1% drop in 2014 to 15.1m, missing its projection of 16.3m-16.8m (announced in 1Q14). Against this challenging backdrop, FEHT has undertaken asset enhancement works on at least four of its assets (capex of S$5m-S$7m) this year to increase their competitiveness.
Maintain HOLD
We pare our FY15 gross revenue and DPU forecasts by 0.5% and 2.0%, respectively, and introduce our FY16 projections. But as we roll forward our valuation, which captures contribution from FEHT’s joint venture hotel development project at Sentosa, this raises our fair value estimate from S$0.80 to S$0.82. Given the limited total potential returns of 2.6%, we maintain HOLD on FEHT.
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