Far East Hospitality Trust: Starting 2014 on the Right Track

Far East Hospitality Trust (SGX: Q5T) is a stapled trust currently consisting of Far East Hospitality Real Estate Investment Trust and Far East Hospitality Business Trust. The trust owns eight hotels and four serviced apartments in Singapore. It is sponsored by the Far East Organization, the largest privately-held property developer in Singapore.

Last year, Far East Hospitality Trust had seen its results coming in lower than its own forecasts (the trust got listed in August 2012 and had released earnings forecasts in its IPO filing), resulting in smaller than expected distributions for unitholders. With the release of its first quarter results for 2014 just yesterday, let’s see how it had fared.

Operating results

Gross revenue for the quarter grew 9% year-on-year, breaking past the S$30million mark. This was mainly due to the addition of new revenue coming from Rendezvous Hotel Singapore which was acquired last August. Meanwhile, the trust’s net property income had experienced a smaller increase of only 6.3% to S$27.6 million on the back of a huge increase in property taxes and retail & office expenses.

Somewhat in line with the increase in net property income, the trust’s income available for distribution also increased by 4.5% to S$23million. Unfortunately, as the stapled security base had also increased over the last 12 months, the distribution per security actually fell 5.8% to only 1.30 Singapore cents.

Although there have been talks about a possible oversupply in Singapore’s hotel space in the past, the average daily rate for the trust’s hotels had increased by 1.2% year–on-year to S$190 per room. However, there was indeed a slight decline in average occupancy from 85.5% to 83.4%.

Hotels continued to make up the largest slice of the pie for the trust, accounting for 67.4% of first quarter gross revenue. The rest is split between its serviced residences and other commercial buildings.

The trust has a gearing ratio of 30.9% and a weighted average debt to maturity of 3.1 years. Its cost of debt is relatively low at 2.2%; more importantly for investors, most of its debt (some 62% of total borrowings) carry fixed interest rates, hence lowering interest rate risks for the trust at least over the next 3 years before it has to start refinancing the first slice of those fixed-rate borrowings.

Foolish Summary

The trust is preparing more asset enhancement programs in some of its hotels so as to improve overall competitiveness. Furthermore, the trust’s management expects visitors to Singapore (both for business and leisure) to increase, resulting in positive spillover effects for the trust. Far East Hospitality Trust closed at S$ 0.89 yesterday, which translates to an annualised distribution yield of 5.8% and a price-to-book ratio of 0.9.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Stanley Lim doesn’t own shares in any companies mentioned.