Far East Hospitality Trust

Far East Hospitality Trust (FEHT): 3Q13 results in line with OCBC’s estimates, but below IPO prospectus forecast. Distributable income was $24.2m or 7.4% below forecast, as FEHT’s hotels continued to face stronger than expected price pressure on room rates. Accordingly, DPU was 1.41 cents or 7.8% below forecast, which translates to 6.3% annualized yield based on the last closing price of $0.90. Gross revenue was $31.5m or 9.4% lower than the forecast. RevPAR for the hotels, excluding the Rendezvous property (which was acquired on 1 Aug), was $167.1, 8.9% below forecast. The serviced residences also performed poorer y/y, with RevPAU of $229.5, 2.6% below forecast. Mgt notes in 3Q13, the operating environment remained challenging due to higher than expected price competition from the new supply of hotels and tight corporate budgets. The hospitality sector also felt the impact of a stronger SGD which resulted in fewer bookings from key tourist markets such as Indonesia and Msia. But mgt is more optimistic on outlook in 2014, as in 1H14, the industry will benefit from the staging of the biennial Spore Airshow and the Food and Hotel Asia exhibition. In addition, the MICE industry will receive a boost from the reopening of the SUntec Convention and Exhibition Centre and opening of the new Spore Sports Hub. To address competition in the mid-tier/upscale hospitality sector, FEHT will focus on revenue management, growing the corporate segment and driving more direct bookings on its own website to improve yields. It will continue to strengthen its portfolio through asset enhancement initiatives for selected properties, upgrade ~10% of the hotel rooms and serviced residence units in the portfolio in the next 12 months, and seek acquisition opportunities. FEHT’s retail and office spaces are expected to operate at high occupancy rates and provide a steady income stream to the portfolio. OCBC maintains at Hold with TP $0.92 under review, pending results briefing.