Monday, July 30, 2018

Far East Hospitality Trust - Q2 FY18 Results & Thoughts

Far East Hospitality Trust (FEHT) announced their Q2 FY18 results which was very much under expectations as we saw topline increases 10.2% year on year and DPU increases by 4.1%.

The results is in line with my expectations when I blogged about them about 3 months ago which you can find here.

If you have attended my recent talk in the Investors Exchange, you would also notice that this is an example of the 6+4 = 10% strategy type, where 6% is their current yield and 4% is their inorganic + organic growth potential.

In terms of the portfolio performance, hotels segment outperformed as we see a rebound of the Revpar, which is a function of the ADR multiplied by the Occupancy rate, both increases to a strong 6.9% year on year from $134 to $143. Given the recent hotel segment results from OUEHT and FHT, I am rather worried if we'll see a rebound happening in this quarter as their Revpar results have flattened but it proves otherwise for FEHT.

Unfortunately, the service residences segment continue to disappoint as we see Revpar dropped 4.5% from $177 to $168 as corporate demand continued to be sluggish. I'm pretty sure we haven't seen the bottom yet so we might see more drop in this segment over the next few quarters.

There is also new contribution in the Q2 portfolio as Oasia Downtown contributed positively to the performance with a pro-forma 4% higher to the NPI so that's the inorganic growth I was talking about.

All in all, pretty decent performance.

If we annualized the DPU, we'll get a 6% yield based on 1.01 cents x 4 which was still very low to me given their hospitality nature so we'll have to see if the organic growth can come back strongly over the next few quarters otherwise their high gearing would limit their growth in terms of M&A opportunity.

Thanks for reading.

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