• Far East Hospitality Trust's 1HFY19 DPU of 1.82 Scts came in below at 45% of our full-year forecast.
• Hotel segment saw weak RevPAR due to poor corporate demand while the serviced residence segment was stable due to higher leisure demand.
• Downgrade to HOLD from Add with lower Target Price of S$0.68. Lacks strong catalyst.

1HFY19 Results Highlights

• FAR EAST HOSPITALITY TRUST (SGX:Q5T)’s 1H19 DPU of 1.82 Scts, -6.7% y-o-y was below our expectations at 45% of our FY19F forecast. Distributable income fell 4.8% y-o-y to S$34.8m, despite 2.7%/3.0% y-o-y improvements in gross revenue/net property income due to higher finance costs post acquisition of Oasia Hotel Downtown.

Weaker Performance From Hotel

• Hotel RevPAR declined 2.1% to S$138 due to
  1. lower occupancy rate of 88.7% in 1HFY19 versus 89.7% in 1HFY18, and
  2. lower average daily rate of 0.9% y-o-y to S$156.
• While there was an increase in visitor arrivals to Singapore, the weaker corporate segment due to fewer major events dragged the take-up rate. Unlike last year, when some Far East Hospitality Trust's hotels benefited from events such as the Singapore Airshow, Food&Hotel Asia and the Trump-Kim Summit, there were no major city-wide events in 1H19.
• In addition, economic uncertainties led to lower volume of business travel. Revenue contribution from the corporate segment slipped from 38.5% in 2Q18 to 33.4% in 2Q19.

Source: CGS-CIMB Research - 31 Jul 2019