• 1Q16 DPU inched up 0.9% YoY
• Weak corporate demand
• Lower FV but maintain HOLD

1Q16 results in-line with expectations

Far East Hospitality Trust (FEHT) reported a muted set of 1Q16 results, but was still within our expectations. Gross revenue remained unchanged at S$27.4m, and came in at 23.0% of our full-year forecast. DPU increased 0.9% to 1.08 S cents, making up 23.4% of our previous FY16 DPU forecast. For FY14 and FY15, 1Q contribution to full-year DPU was 25.3% and 23.4% respectively; the former was skewed by 2Q’s lower contribution following the MH370 attacks.

Oversupply to remain a challenge

RevPAR for FEHT’s Hotels portfolio remained unchanged at S$141 in 1Q16, with occupancy increasing 5.7 ppt to 88.0% and ADR dropping 6.4% to S$160. RevPAU for FEHT’s Serviced Residences portfolio dropped 8.7% to S$188, with occupancy dipping 1.5 ppt to 84.3% and ADR decreasing 7.1% to S$223. We expect oversupply to remain a challenge with an estimated addition of 2,717 hotel rooms (+4.8%) coming into the market in 2016.

AEI completion and upcoming MICE events

Major events such as Food & Hotel Asia, BroadcastAsia, and Unicity are expected to provide a YoY boost to room rates and occupancy in 2Q16 and 3Q16. Furthermore, FEHT has completed its AEI at Village Residence Clarke Quay, which accounts for 34.8% of FEHT’s Serviced Residences units, and we expect this to contribute positively to revenue in this current quarter. AEIs at Regency House and Orchard Parade Hotel are earmarked for completion this quarter, the benefits of which will only be seen in 2H16.

REVPAR/REVPAU growth assumptions adjusted downward

Nonetheless, on a full-year basis, we continue to be concerned with the weak macroeconomic environment and oversupply situation. For FY16, we expect FEHT’s Hotels REVPAR to remain flat and Serviced Residences REVPAU to drop 5% YoY. Revenue from excluded commercial premises is expected to dip 1.7%. We lower our FY16 DPU forecast by 2% to 4.52 S cents on these weaker RevPAR/RevPAU assumptions, resulting in a reduced fair value estimate of S$0.63 from S$0.64 previously. Maintain HOLD.

Source: OCBC Research - 28 Apr 2016