• 1Q15 DPU slumped 17.7% YoY
• Silver lining from SEA Games
• Cautious on outlook

1Q15 results below our expectations

Far East Hospitality Trust (FEHT) reported a lacklustre set of 1Q15 results, with gross revenue dipping 10.8% YoY to S$27.4m. DPU slipped 17.7% to 1.07 S cents, underpinned by weaker demand for accommodation caused by the uncertain macroeconomic landscape. This formed 21.6% and 20.4% of our full-year projections, respectively. Although we expect FY15 to be a more backend-loaded year, this set of results still fell short of ours and the street’s expectations.

Disappointing RevPAR/RevPAU figures

Faced with intensifying competitive pressures, weaker corporate demand and a dip in visitors from South-east Asia (SEA), especially Indonesians, FEHT suffered a YoY fall in its RevPAR (-11% to S$141) for its Hotels portfolio and a 7.1% decline in RevPAU to S$206 for its Serviced Residences (SR). This came on the back of lower average daily rates (ADR) for its Hotels segment (-9.9% to S$171) and SR (-5.5% to S$240) despite relatively stable occupancy rates (-1 ppt for Hotel and -1.5 ppt for SR). We conclude that hospitality players have aggressively lowered prices and offered more promotions in order to boost their market share. A silver lining for FEHT is the fact that one of its hotels, Village Hotel Bugis, has been chosen as one of the 20 hotels used to accommodate athletes and officials participating in the upcoming SEA Games in Jun this year. According to management, the participants would occupy half of the hotel for ~10 to 14 days. In addition, we note that Village Hotel Albert Court has been selected to house the family members and friends of the athletes.

Pare forecasts; maintain HOLD

Looking ahead, management expects near-term headwinds to persist, although there may be potential improvement in visitor arrivals from MICE activities, new attractions and sports tourism. However, we remain cautious on the outlook of the Singapore hospitality sector given that 3,331 hotel rooms are expected to be added to the market in 2015. We lower our FY15 and FY16 DPU forecasts by 7.0% and 5.4%, respectively, to take into account FEHT’s lackadaisical start. Our DDM-derived fair value estimate falls from S$0.82 to S$0.77. Maintain HOLD.

Source: OCBC Research - 30 Apr 2015