FEHT's 3Q19 DPU in Line With Street, Recovery Intact, BUY

• FAR EAST HOSPITALITY TRUST (SGX:Q5T)’s 3Q19 DPU of SGD1.04 (-1.0% y-o-y, +14.3% q-o-q) was in line with consensus, with growth driven by a stronger performance at its serviced residence (SRs). See Far East Hospitality Trust Announcements; Far East Hospitality Trust Dividend History.
• We see RevPAR/RevPAU improving into 2020 on stronger corporate demand, well supported by a busier Singapore corporate events schedule. Our DDM-based SGD0.80 Target Price (COE: 7.4%, LTG: 2.0%) is unchanged. See Far East Hospitality Trust Share Price; Far East Hospitality Trust Target Price.
• We believe hotel RevPAR recovery will be backed by tightening supply and continue to see upside potential from its higher Singapore RevPAR sensitivity. We estimate 1% RevPAR increase from our base case implies 1.2% FY20E DPU upside.
• Further ahead, DPU levers are supported by its sponsor’s ROFR pipeline. BUY.

Serviced Residences Looking Up

• Far East Hospitality Trust's revenue and NPI increased 1.2% y-o-y and 1.3% y-o-y in 3Q19 with higher occupancies at both its hotels and SRs, which rose y-o-y from 90.7% to 92.3% and 87.2% to 88.2%, respectively. While RevPAR for its hotels was flat due to weaker corporate demand, RevPAU for its SRs rose 5.4% y-o-y. Management attributed this to growth in shorter-stay bookings at 4.4% y-o-y higher ADRs, supported by demand from the FMCG services and logistics sectors, and some switch-over from leisure bookings.
• We see RevPARs/ReVPAUs improving further into 2020 against high occupancies and a stronger corporate events calendar. We forecast RevPAR growth of 2-5% for 2020-21E. This would be led by stronger volume growth and a pick-up in yields.

Recovery Strengthened by Easing Supply, Visible DPU Growth Levers

• RevPAR growth will be strengthened by easing supply. Savills estimates new hotel rooms to slow to 1.4%% CAGR in 2018-20E from 5.1% in 2013-17.
• We see medium term DPU growth levers from its sponsor’s ROFR pipeline of 1,767 rooms and its remaining interests in three Sentosa hotels:
  1. The Village with 606 rooms,
  2. Outpost (193), and
  3. Barracks (40).
• We see the 116-room Oasia West Residences as a closer acquisition target, backed by favourable demand fundamentals.

Source: Maybank Kim Eng Research - 31 Oct 2019