Far East Hospitality Trust

Far East Hospitality Trust’s (FEHT) 3Q15 results missed expectation as DPU and distributable income slid to 1.2¢ (-9.1% y/y) and $21.6m (-8%) respectively. This brought 9M15 DPU to 3.43¢ or 71.5% of full year consensus estimate.

NPI fell 4.6% to $26.9m, in tandem with a lower gross revenue of $29.7m (-4.8%), largely eroded by softer room demand from corporates amid the lukewarm global economy.

Compounding the problem was the weak leisure demand given the tepid tourism market in Singapore, which was adversely impacted by the haze and a strong SGD against regional currencies.

To sustain occupancy, average daily rates for hotels (-6%) and serviced residences (-7.2%) were cut, resulting in lower hotel RevPAR of $151 (-5.6%) and SR RevPAU of $209 (-9.2%). This enabled to hold up its hotel occupancy of 87.4% (+0.3ppt), but SR occupancy eased to 90.2% (-2ppt).

Contribution from retail and office spaces, which accounted for 20% of revenue, was the only bright spot as it expanded 3.8% to $6.1m.

Bottom line was further weighed by higher finance costs, stemming from a spike in short term interest rate.

In comparison to prior quarter, aggregate leverage (31.4%) and cost of debt (2.5%) were relatively unchanged, while average debt tenor was extended to 3.6 years from the previous 3 years. 60% of total debt was hedged.

Looking ahead, management are seeing nascent signs of recovery in visitor arrivals to Singapore and expects on-going government efforts as well as major events such as Singapore Airshow, Food & Hotel Asia, and World Rugby Seven Series, to provide a boost to the tourism industry.

However, strong headwinds from oversupply of hotel rooms, haze outbreak, a relatively strong SGD, and demand shortage arising from a global economic slowdown are likely to persist.

FEHT currently offers an annualised distribution yield of 6.8% and trades at 0.7x P/B.