Hospitality REITs - UOB Kay Hian 2016-03-30: Sounding The Gong On Tourist Arrivals

Hospitality REITs - UOB Kay Hian 2016-03-30: Sounding The Gong On Tourist Arrivals REIT CDL HOSPITALITY TRUSTS J85.SI 

REITs ‒ Singapore Hospitality REITs: Sounding The Gong On Tourist Arrivals 

  • A record-breaking start to the year, with the strongest arrivals in January to-date, which prompted an upward revision to our 2016 arrival estimate. 
  • Empirical evidence points to potential room-rate growth, with resilient occupancy to drive RevPAR growth. 
  • We see value re-rating of battered hospitality REITs on the back of stronger tourist arrivals and stabilisation of room rates. 
  • CDREIT will be a key beneficiary of a turnaround in the Singapore hospitality space. 


• Record start to the year. 

  • At 1.4m arrivals, total visitor arrivals jumped 12.2% yoy in Jan 16, a record monthly high. This exuberant figure was propelled by positive growth in the five largest inbound markets - Indonesia, China, Malaysia, Australia and India - collectively making up 54.2% of total international visitors. 
  • We note that January’s figures have not factored in the biennial Singapore Airshow tourist numbers in February. 

• No signs of stopping the awakened dragon... 

  • Despite Jan 15’s slumber, China’s tourist arrivals started this year with a bang, registering a record 228,100 visitors (+62.3% yoy) in January. 
  • We opine that February, which is a seasonally strong month for Chinese travels given the Chinese New Year holidays, could surpass January’s showing, and sustain the healthy Chinese arrival numbers in 2015 (+22.3% yoy). 
  • Singapore Tourism Board (STB) data indicates that growth in 2015 was also driven by inbound travel from tier-2 cities in China, such as Chongqing, Tiajin and Nanjing, bolstered in part by marketing campaigns launched by Changi Airport Group (CAG) and the STB. 

• ...while the Indonesians look to reassure. 

  • After 17 consecutive months of yoy declines, Singapore’s largest of source of tourists saw a reversal in Jan 16, posting a growth of 5.4% yoy. This could likely be attributable to a weakening Singapore dollar against the rupiah, as well as concerted efforts to tap into Indonesia’s secondary cities. 
  • Jetstar Asia launched routes to Palembang and Pekanbaru in end-15, while the STB also expanded its presence into areas like Surabaya and Bandung. 

• Continued support from India 

  • Continued support from India, which saw a respectable arrival growth of 10% yoy to 80,952 visitors, also a record high for January. This continues 2015’s commendable growth of 7.5% yoy. 

• STB forecast remains modest amid the exuberance. 

  • Despite the strong showing in January, STB has retained its tepid outlook, forecasting 0-3% tourist growth for 2016. 
  • We reckon the healthy line-up of events this year, such as the biennial Singapore Air Show in February and the Singapore debut of prominent medical congresses (ISMRM, SpineWeek 2016), will spur corporate bookings. This should also bolster the likely prospects of a dominant first quarter, and we raise our visitor growth assumption to 5% for 2016 (previously 3%). 

• More room for rooms. 

  • With hotel expenditure hovering 10% below the 5-year average, room for average daily rate (ADR) expansion exists in light of visitor growth and resilient occupancy, coupled with tapering hotel supply post 2017. Hotel receipts plummeted 12.3% yoy in 9M15 to S$309 per person. 
  • We opine that wallet-friendly hotel stays could have been a pull factor for increased tourist arrivals from 2H15 onwards. However, strong tourist growth coupled with high average occupancy (83.9% Jan 16) leaves room for hotel expenditure to increase nearly 10% to the 2010-14 average of S$337 per person. 
  • Channel checks revealed that occupancies have held up at approximately 85%, with room rates showing signs of stabilisation in the last two months. 

• Tapering room supply after 2015’s zenith to improve RevPAR. 

  • According to industry consultants, 2016 should see fewer than 4,000 rooms added to the overall room inventory, or about a 6% increase yoy, slower than the 7.4% increase in 2015. The supply growth will taper to 1% by 2018. 
  • We anticipate hotel room demand driven by tourist growth of 5% in 2016 and 3% each in 2017 and 2018 to outpace the 3-year 3.8% CAGR in supply, resulting in a 20-80bp pick-up in occupancies to 85-86% levels. 
  • We forecast RevPAR growth of 2-3% yoy and 3-5% in 2016 and 2017 respectively on the back of expected improvement in occupancies. 


 • Watch out for re-rating of Hospitality REITs on the back of stronger tourist arrivals in February and stabilisation of room rates. 

  • We view CDL Hospitality Trusts as a key beneficiary of a potential turnaround in the domestic hospitality market (71% Singapore assets by value). 
  • Watch out for the potential bottoming out of RevPAR, with 4Q15 RevPAR down 25% from the 2012 peak. Post a 26% yoy decline in share price, CDREIT currently trades at an undemanding 0.8x P/B with a forward yield of 8.1%. 
  • Ascott Residence Trust and Frasers Hospitality Trust will also benefit from a re-rating of the segment. 


  • Pick-up in room rates. 


  • We expect visitor arrivals to grow 5% yoy to hit 16m in 2016. 


  • A stronger Singapore dollar. 
  • Unanticipated new supply of hotels.


Derek Chang UOB Kay Hian | Vikrant Pandey UOB Kay Hian | 2016-03-30