Strong 1Q22, Recovery Underway, Upping DPU, Target Price

• Far East Hospitality Trust (SGX:Q5T)'s 1Q22 distributable income jumped 17.2% y-o-y, ahead of consensus and our estimates, driven by lower-than-expected financing costs. While Far East Hospitality Trust’s hotels continue to be backed by fixed rents, NPI recovery is underway, as RevPARs are set to strengthen with Singapore’s full reopening.
• Divestment of Central Square has bolstered Far East Hospitality Trust’s balance sheet, with potential DPU upside from capital distributions.

Hotels on Fixed Rents, RevPAR on the Rise

• Hotel revenue was flat y-o-y and q-o-q and supported by fixed rental from its master leases, while contributing ~68% of total 1Q22 revenue. Occupancy declined to 67.7% (from 76.1% in 1Q21), with the expiration of government contracts at 2 of its 9 hotels, with 3 remaining and rolled over into 2Q22. RevPAR rose ~16% y-o-y to S$59 while ADRs jumped ~32% y-o-y to S$87, from a favourable trade mix (with higher corporate and leisure demand).
• We expect RevPAR to climb with improving demand, and a reopening of the Elizabeth Hotel in 3Q22 post-AEI.

Tightening Serviced Residence Vacancies, Growth in Long-stays

• Serviced residence (SR) revenue rose ~2% y-o-y and 5% q-o-q and continued to perform above its fixed rent, supported by long-stay corporate demand, which accounted for ~76% of 1Q22 revenue, led by the services (16%), electronics and manufacturing (14%) and oil & gas industries (14%). RevPAU jumped ~24% y-o-y to S$174 on higher occupancies (74.7% to 86.6%) and ADRs (S$187 to S$201).
• We expect vacancies to tighten further, helped by rising relocation demand and corporate leasing activities, and we see room for ADRs to rise further into 2H22.

Stronger Balance Sheet, Set for AUM Growth

• Proceeds from the S$313m Central Square management will prioritise AUM growth from its sponsor’s Singapore assets ahead of overseas diversification as it eyes acquisition opportunities.

Source: Maybank Research - 28 Apr 2022