Hospitality REITs – Huan Ying!
- STB’s recently released visitor arrival and hotel RevPAR data for April 2015 show weak numbers YTD on the back of volatile regional currencies and intense competition within the mid/economy tiered segments.
- In 2015, bright spots lie in the potential recovery of Chinese visitors as positive catalysts such as
- STB’s promotional activities in China and
- the recent launch of the 10-year visas for Chinese visitors continue to establish Singapore as a mono-destination.
- On this basis, we maintain our Overweight rating on the hospitality REIT sector as we believe the strength to outweigh the weakness, with CDL-HT as our top pick.
What Happened
- Singapore Tourism Board (STB) recently published April’s visitor arrival data and hotels’ performance. Both visitor arrivals and hotel revenue per available room (RevPAR) remained weak, posting YTD dips of 5.4% (-3.0% yoy in April) and 7.6%, respectively.
What We Think
- In April, visitor arrival weakness within the top five markets came mainly from Indonesia (-10.1% yoy), Australia (-16.4% yoy) and Malaysia (-4.8% yoy). China and India, on the other hand, posted healthy growth of 21.5% yoy and 5.6% yoy, respectively.
- Notably, these trends coincided with the strength of the respective currencies during 1Q15, re-emphasising our belief that currency volatility remains one of the key risks for the hospitality market in FY15. For hotels, RevPAR weakness was witnessed across the board, with a milder impact for luxury (-5.5% yoy) and upscale hotels (-6.7% yoy) than for mid-tier (-8.7%) and economy hotels (-13.1%).
- Furthermore, though occupancy largely held up by easing just 1.5% yoy, ADR, particularly for mid-tier (-10.5% yoy) and economy-tiered hotels (-10.2%) was hit by continued heavy competition in these segments as the market continues to digest the new supply (e.g., Hotel Grand Chancellor, Hotel Jen etc).
- Looking ahead, as the weakness of Malaysia’s and Indonesia’s currencies continues to hit their outbound tourism, the bright spot within the hospitality sector is expected to come from China, the second largest tourism contributor in terms of both arrivals and tourism receipts.
- Aside from STB’s promotional activities in China, Singapore’s government announced that from June 15, it will extend the validity of multiple journey visas issued to Chinese nationals to up to 10 years. Not only does the extension remove the hassle of reapplying for a visa each trip, the same facility will also be extended to the eligible main applicant’s spouse and children below the age of 21.
- In our view, aside from boosting visitor numbers, the new visa will attract more high value tourists with stronger spending power, while further promoting Singapore as a mono-destination.
- For 2H15, barring any unforeseen circumstances (e.g., the spreading of MERs to Singapore), we remain positive on the outlook of both tourism and hospitality of Singapore given the upcoming school holidays in China (July and August), recent SEA games, longer length of stay and more upcoming events.
What You Should
- Do Among the hospitality REITs, we continue to favour CDL-Hospitality Trust (add; TP: S$1.89) for its
- exposure to the recent SEA games,
- growth in DPU from its Japan acquisitions and recently completed Claymore Link mall, and
- recent share price correction of 7.3%.
- We continue to see value in this stock which is trading at 7.2% dividend yield vs. 7.0% for its peers.
- Strong S$ a dampener for tourists. As the Singapore dollar remains firm relative to the regional currencies, it has in part deterred tourists from visiting Singapore which is deemed to be a more expensive place to visit than other parts of Asia. This trend was once again noted as April’s visitors numbers from the top five countries coincided with the strength of the respective currencies in 1Q15.
(PANG Ti Wee; LOCK Mun Yee; TAN Xuan, CFA)
Source: http://research.itradecimb.com/
