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Far East Hospitality Trust’s Latest Earnings: What Investors Need To Know

Far East Hospitality Trust (SGX: Q5T) had released its fiscal first-quarter results yesterday morning. The reporting period was from 1 January 2016 to 31 March 2016.

As a quick background for context later, Far East Hospitality Trust is a stapled trust with a focus on the ownership of hotels and serviced residences in Singapore. As of the end of 2015, its portfolio consists of 12 properties with over 2,800 rooms. Some of the trust’s properties include Rendezvous Hotel Singapore, Regency House, and The Elizabeth Hotel.

Financial highlights

The following’s a quick rundown on some of the latest financial figures for Far East Hospitality Trust:

  1. Gross revenue came in at $27.4 million, unchanged from the corresponding quarter a year ago.
  2. But, net property income (NPI) was up by 0.8% to $24.7 million due to lower property expenses.
  3. The income available for distribution for the reporting quarter had inched up by 1.3% year-on-year to $19.4 million.
  4. As a result, the trust’s distribution per unit (DPU) had recorded a 0.9% increase to 1.08 cents for the quarter.
  5. Far East Hospitality Trust ended the reporting quarter with a net asset value of S$0.9324 per stapled security, down by 3.6% from a year ago.

Beyond these, Foolish investors might want to keep an eye on the trust’s debt profile. The debt profile may provide clues on how it is funded and its sensitivity to the interest rate environment. These are summarised for Far East Hospitality Trust below:

Far East Hospitality Trust's balance sheet (28 April 2016)
Source: Far East Hospitality Trusts’ earnings presentations

To sum it up, the trust’s debt profile has deteriorated slightly over the past year. Its total borrowings had increased to S$822 million, resulting in a higher gearing ratio. Meanwhile, the average cost of debt had also ticked up from 2.5% to 2.6%.

Operational highlights

Moving on to the operational highlights, revenue per available room (RevPAR) for the trust’s hotels was flat at S$141 compared to a year ago even though occupancy rates have increased to 88.0% from 82.3%. This is a result of a decline in the average daily rate from S$171 in the first-quarter of 2015 to S$160, brought about by stiffer competition from new supply of hotels.

On the serviced residences front, the revenue per available unit (RevPAU) turned out to be S$188, a decline of 8.7% % on a year-on-year basis. The trust had blamed softer demand from project groups and lower corporate travel budgets, which resulted in the double whammy of a 7.1% decrease in the average daily rate and a 1.5% drop in the occupancy rate.

Outlook and valuation

On the outlook ahead, the Singapore Tourism Board (STB) is forecasting international visitor arrivals to fall between 15.2 million and 15.7 million. This numbers represent growth of up to 3% from 2015. According to other data from the STB, visitors to Singapore have jumped by 12.3% year-on-year in the first two months of 2016, with contributions from key sources such as China and Indonesia.

Far East Hospitality Trust also thinks that a “stronger events calendar in 2016 and the marketing initiatives by the government agencies could contribute towards improving visitor traffic into Singapore.”

That said, the REIT’s manager “remains cautious given the uncertain economic environment which could affect demand from the corporate segment, and the new supply of about 2,700 new hotel rooms coming on-stream in 2016.”

Far East Hospitality Trust last traded at a unit price of S$0.82 yesterday. This translates to a trailing price-to-book ratio of 0.94 and a trailing distribution yield of 7.47%.

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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 James Yeo doesn’t own shares in any companies mentioned.