Far East Hospitality Trust: Dragged down by weak corporate demand August 1, 2016

  • S$53.5mn 1HFY16 gross revenue met 47% of consensus full year expectations of S$114.9mn
  • 09 cents 1HFY16 DPU met 46% of consensus full year expectations of 4.5 cents
  • Weakness continued into 2QFY16, keeping 1HFY16 RevPAR/RevPAU 4.2%/8.7% lower year-on-year

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  • Softer corporate demand, change in customer-mix affected Hotels

Corporate travellers accounted for 38.2% of Hotels revenue in 2QFY16, lower y-o-y from 45.3%. The strategy of taking in more lower-paying leisure travellers was adopted in order to fill rooms, due to the softer corporate demand. Corporate booking was particularly affected at Orchard Parade Hotel (third largest hotel in the portfolio in terms of number of rooms), due to the refurbishment of the function rooms, swimming pool and lobby. Changi Village Hotel also saw lower corporate demand from the Oil & Gas companies located at Loyang. We think the Hotels segment would continue to be challenged for the remainder of the year, in view of competition from new supply of rooms and cautious economic outlook.

  • Lower demand from corporate project/training groups for Serviced Residences

In addition to the weakness in demand from the Oil & Gas industry, there was some reduction in training groups from the Banking & Finance industry. Management also reported some project group terminations, as the companies were unable to renew the employment passes of their staff.

  • AEIs for this year are completed, full inventory of rooms available in 2HFY16

Asset enhancement initiatives (AEIs) at Orchard Parade Hotel and Regency House have been completed. Next planned AEIs will be to the guest rooms at Orchard Parade Hotel in 2017. Management highlighted that the full inventory of rooms will be available in 2HFY16, ready to compete in the market. At the same time, the Group’s website has been revamped; in an effort to encourage direct bookings instead of bookings through third-party agents. If successful, we view this positively as it would lower operating expenses, as commissions that eat into margins can be reduced.

Investment Action

No stock rating or target price provided, as we do not have coverage on FEHT.

Peer relative valuation

FEHT is trading below the peer average trailing P/NAV and with a slightly lower 12M trailing yield than the peer average.

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Richard Leow
Research Analyst
Phillip Securities Research Pte Ltd

Richard covers the Transport Sector and Industrial REITs. He graduated with a Master of Science in Applied Finance from the Singapore Management University. He holds the CFTe and FRM certifications and is a CFA charterholder.

He was ranked #2 Top Stock Picker (Asia) for Real Estate Investment Trusts in the 2018 Thomson Reuters Analyst Awards, and ranked #2 Top Stock Picker (Singapore) for Resources & Infrastructure in the 2016 Thomson Reuters Analyst Awards.

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