Far East Hospitality Trust

Far East Hospitality Trust: 1Q15 results below estimates, with DPU of 1.07¢ (-17.7%) alongside distributable income of $19.2m (-16.9%).

Gross revenue fell 10.8% to $27.4m and NPI was down 11.3% to $24.5m, mainly due to softer demand for accommodation, in line with the fall in visitor arrivals and uncertain economy.

In addition, the hotel portfolio experienced less demand from the higher-yielding corporate segment, with occupancy rate down 1ppt y/y to 82.3%, resulting in RevPAR declining 11.0% to $141.

Meanwhile, serviced residences (SRs) occupancy fell 1.5ppt to 85.8% as it saw a reduction in bookings from project groups, resulting in a 7.1% decline in RevPAU to $206 .

A spike in short-term interest rates in 1Q15 resulted in an increase in finance costs (+19.4%), which partially weighed on DPU.

Going forward, FEHT cautions that the uncertain global economic environment and the relative strength of the SGD will continue to weigh on the sector. Visitor arrivals to S’pore for the first two months of 2015 remained weak, registering a fall of 5.5% y/y, coming on the heels of a 3.1% decline in 2014. The STB has moderated its forecast for 2015, expecting visitor arrivals to remain flat or to grow modestly by up to 3% to 15.5m.

On the supply front, ~3,300 new hotel rooms are expected to come on-stream in 2015. With the increase in room supply coupled with the soft demand, competition within the Singapore hospitality market is expected to remain intense.

Later in the year, however, the tourism industry can expect to benefit from the opening of new attractions such as the National Gallery Singapore and major events such as the 2015 ASEAN Games and FINA Swimming World Cup 2015.

Leverage ratio stood at 31.5%, with average debt cost of 2.5% and tenor of 3.2 years.

At the current price, FEHT trades at 0.85x P/B and 5.2% annualized 1Q15 yield versus its peer average of 0.98x P/B and 6.9% yield.