SG Hospitality - OCBC Investment 2017-08-18: 2Q Recap – RevPARs Largely Resilient

SG Hospitality - OCBC Investment 2017-08-18: 2Q Recap – RevPARs Largely Resilient S-REITs Singapore Hospitality REITs CDL HOSPITALITY TRUSTS J85.SI ASCOTT RESIDENCE TRUST A68U.SI OUE HOSPITALITY TRUST SK7.SI FAR EAST HOSPITALITY TRUST Q5T.SI

SG Hospitality - 2Q Recap – RevPARs Largely Resilient

  • YoY DPU growth from -14% to +32%.
  • Room supply to grow 4% in FY17.
  • 5.2% to 6.6% FY17 yields.



For the REITs under our coverage, 2Q Hotel RevPAR growth ranged from -1.4% to +5% YoY. 

  • OUE Hospitality Trust’s (OUEHT) Mandarin Orchard Singapore made a strong recovery from its low base last year, while CDL Hospitality Trusts’ (CDLHT) and Far East Hospitality Trust’s (FEHT) hotel portfolios both recorded minimal declines YoY.
  • Meanwhile, 2Q Serviced Residences RevPAU – which is more dependent on corporate demand – fell 5% YoY for Ascott Residence Trust’s (ART) and 5.7% YoY for FEHT’s SG-based SR portfolios. 
  • On the whole, 2Q17 DPU growth for the REITs under our coverage ranged from -13.6% to +31.5% YoY. 
  • On one end of the spectrum, ART’s DPU had been negatively affected by the larger unit base after its rights issue, with the contribution from Ascott Orchard Singapore only expected to come in Oct. 
  • On the other end, OUEHT’s strong DPU growth was fed by stronger contributions from Mandarin Gallery as well as the maiden contribution from the expanded Crowne Plaza Changi Airport, which was only acquired in Aug 2016.


Part of supply injection has been pushed back 

  • According to Horwath, SG hotel room supply is expected to grow +4.0% in 2017, down from the +5.9% projection revealed last quarter. In 2018, the room supply is expected to grow +1.7%, up from the previous +0.1% forecast. 
  • We believe this may put a slight damper on the RevPAR rebound we expect in 2018. We generally expect leisure demand to remain healthy into next year, but note that corporate demand seems to remain weak albeit slightly better compared to last year. 
  • We see the strength of corporate demand as the key variable going into 2018.


Aggressive yield compression YTD 

  • According to our forward estimates, hospitality REITs under our coverage are trading at 5.2% (ART) to 6.6% (OUEHT) FY17F dividend yield and 6.0% (ART) to 6.7% (OUEHT) FY18F dividend yield. 
  • Within the hospitality sector, our top pick remains OUEHT [BUY; FV: S$0.82] given its DPU growth prospects as well as its undemanding price levels. 
  • In other corporate updates, ART has completed its acquisition of DoubleTree by Hilton Hotel New York. 
  • Given the recent compression in yields, we maintain NEUTRAL on the hospitality sector.








Deborah Ong OCBC Investment | http://www.ocbcresearch.com/ 2017-08-18
OCBC Investment SGX Stock Analyst Report BUY Maintain HOLD 1.525 Same 1.525
HOLD Maintain HOLD 1.100 Same 1.100
HOLD Maintain BUY 0.820 Same 0.820
HOLD Maintain HOLD 0.660 Same 0.660



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