• 3Q14 DPU down 6.4% YoY
• Hotels’ RevPAR dipped 3.9% YoY
• Lower FV and maintain HOLD

3Q14 results below expectations

Far East Hospitality Trust (FEHT) reported its 3Q14 results which fell short of ours and the street’s expectations. DPU dipped 6.4% YoY to 1.32 S cents on the back of a 1.0% decline in gross revenue to S$31.1m. This was attributed to the weaker performance in its hotel portfolio as the average daily rate (ADR) slipped 4.8% YoY to S$183, although occupancy inched up by 0.8 ppt to 87.1%. This resulted in RevPAR of S$160 (-3.9%) for its hotels. On a positive note, performance from its Serviced Residences was stable (RevPAU +0.3% YoY to S$230), while revenue from its retail and office spaces jumped 16.8% to S$5.8m. For 9M14, overall gross revenue rose 2.8% to S$91.4m and formed 69.9% of our FY14 forecast, while DPU of 3.86 S cents (-8.5%) constituted 68.4% of our full-year projection.

Muted demand, while supply concerns remain

Looking ahead, we believe the lacklustre international visitor arrivals and expected increase in supply of new rooms coming into the Singapore market in 2015 could pose headwinds to FEHT’s near-term prospects. According to Jones Lang LaSalle’s estimates, ~2,968 new hotel rooms are expected to be added next year. FEHT’s management highlighted that despite the large headline figure, only ~25% will come from the midtier segment, which is FEHT’s main area of focus. Nevertheless, we believe there would still be downward pressure on FEHT’s ADR in the near future, with a single-digit decline a likely possibility. We expect the situation to improve once room rates from the new hotels adjust to more normalised levels after they become more stable, and this would provide an uplift to overall industry rates.

Pare forecasts and maintain HOLD

We lower our FY14 and FY15 revenue/DPU forecasts by 5.1%/7.1% and 6.5%/9.6%, respectively, given this set of belowexpectations results. Correspondingly, our fair value estimate is reduced from S$0.90 to S$0.80. However, we maintain our HOLD rating on FEHT, as we believe much of the negatives have already been priced in by the market. The stock is down 1.2% YTD, underperforming the FTSE ST REIT Index’s 6.8% appreciation during the same period.

Source: OCBC Research - 10 Nov 2014