Far East Hospitality Trust

Far East Hospitality Trust: 2Q15 results came in below estimates as DPU fell 6.5% y/y to 1.16¢ in tandem with lower distributable income of $20.8m (-5.7%).

Gross revenue and NPI declined to $28.7m (-3%) and $26m (-9%) respectively, mainly due to an influx of new hotel rooms as well as softer demand across both its hotels and serviced residences. To mitigate the impact and drive occupancy, room and unit rates were lowered across its properties.

As a result, hotel occupancy climbed 6.6ppts to 86.7%. International events such as CommunicAsia and SEA Games had a moderate uplift on occupancy rates. RevPAR however, slid 2.1% to $147.

The serviced residences portfolio did not fare any better, seeing a more muted increase of 2.1ppt in occupancy rate to 89.3% amidst a heftier 5.1% fall in RevPAU to $207.

FEHT’s bottom line was further weighed down by a 17% jump in finance costs to $4.9m on a spike in short-term interest rates.

Aside from that, debt position held steady with leverage ratio at 31.5% but at higher average debt cost at 2.5% (+0.3ppt) and tenor of three years. 60% of its debt was secured at fixed interest rates.

Moving forward, Singapore's hospitality industry continues to face headwinds from an uncertain global economic environment and a relatively strong SGD, which will hamper both corporate and leisure visitors. From Jan-May period, tourist arrivals to Singapore fell 4.1%, in the wake of a 3.1% decline in 2014. The STB is projecting visitor arrival growth of between 0% and 3% in 2015.

With a flood of 4,300 new hotel rooms coming on stream in 2015, competition in the domestic hospitality industry is expected to get more intense.

On the upside, the tourism industry could see a few bright spots with sporting events such as the FINA Swimming World Cup and World Rugby Sevens Series, as well as the opening of new attractions such as the National Gallery Singapore, drawing more visitors.

FEHT is currently trading at an annualised 2Q DPU yield of 6.8% and 0.7 P/B.

Latest broker ratings:
OCBC maintains Hold, cuts TP to $0.67 from $0.77
DBS Vickers maintains Hold, cuts TP to $0.71 from $0.78