SINGAPORE (July 31): Sentosa Island, playground for Singapore's rich and famous with its luxury resorts, Michellin-starred restaurants and multmillion-dollar condos, saw the official launch of two new hotels – The Village Hotel and The Outpost Hotel.
The development of the hotels is part of a joint venture between Far East Hospitality Trust (FEHT) and its sponsor Far East Organization to develop a $443.5-million mega hotel project on the island. FEHT holds a 30% stake in this JV.
FEHT's manager has also revealed it is interested in acquiring the remaining stake when the hotel is completed, given it has a first right of refusal to its sponsor's completed assets.
In August, the JV company is also launching Barracks Hotel Sentosa.
With the opening of these two hotels, FEHT recorded a loss of $1.7 million in its share of results of joint venture in its latest 2Q19 results, due to pre-opening expenses and finance costs incurred on the borrowings.
The two hotels were previously capitalised while they were under development and are now being expensed upon obtaining its temporary occupation permit on Oct 31, 2018.
Distribution per stabled security (DPS) for the second quarter ended June was 9.9% lower at 0.91 cents, compared to 1.01 cents a year ago.
Gross revenue also dropped 2.1% y-o-y to $27.9 million, bringing net property income to $25.1 million, 2.4% lower than the previous year.
Income available for distribution declined 7.4% to $17.6 million from $19.0 million in 2Q18.
The manager of Far East H-Trust says average occupancy of the hotels stood at 88.1% in 2Q19, a decrease of 1.7ppt y-o-y. The average daily rate (ADR) was 2.6% lower year-on-year at $156. As a result, revenue per available room (RevPAR) declined by 4.5% to $137.
See: Far East H-Trust reports lower 2Q DPU of 0.91 cent
Currently, FEHT owns nine hotels and four serviced residences in Singapore.
In its outlook, Far East H-Trust’s manager expects arrivals to grow by 1% to 4% in 20191, against an increase of 1.9% -- or 1,275 new rooms -- in hotel room supply this year.
The expected slower pace of increase in hotel room supply over the next few years will help support the recovery in the Singapore hotel sector.
Meanwhile, FEHT's serviced residences also showed signs of turning around.
However, CGS-CIMB Research lead analyst Eing Kar Mai is not convinced.
“Given the weak tourist arrivals, we do not expect strong RevPAR/RevPAU performance from FEHT in 2H. In addition, its high gearing level limits inorganic growth opportunities,” says Eing in a Wednesday report.
CGS-CIMB has also downgraded FEHT to “hold” with a lower target price of 68 cents.
On the other hand, Maybank KimEng is slightly more bullish as it is keeping its “buy” recommendation with a target price of 80 cents.
In a Tuesday report, analyst Chua Su Tye expects a strong 2H19 for FEHT, given a pick-up in demand on the back of easing supply, as well as the completion of renovation and rebranding efforts at its Orchard Rendezvous hotel where RevPAR growth is expected to be supported by higher corporate demand from 2H.
As at 3.00pm, units in FEHT are trading at 68 cents or 0.8 times FY19 book with a dividend yield of 5.7%.
