REIT - CIMB Research 2016-06-14: Robust visitor arrivals offer some respite

REIT - CIMB Research 2016-06-14: Robust visitor arrivals offer some respite REIT ASCOTT RESIDENCE TRUST A86U.SI  CDL HOSPITALITY TRUSTS J85.SI  FAR EAST HOSPITALITY TRUST Q5T.SI 

REIT - Robust visitor arrivals offer some respite

  • Singapore recorded robust 4M16 visitor arrivals (+14% yoy).
  • We expect 7% yoy growth in 2016 visitor arrivals to 16.3m (vs. STB: 0-3% growth).
  • Decline in average length of stay partially offsets the positives. We expect visitor days for 2016 to increase at a less accelerated pace of 3.7% yoy to 57.04m days.
  • Hotel room supply to increase by 5.4% yoy, outstripping growth in visitor days.
  • Hospitality remains our least preferred sub-sector as we do not anticipate a recovery in RevPAR in 2016 just yet.


Expect RevPAR to bottom out

  • Robust international visitor arrivals in 4M16 (+14% yoy) led us to revise our industry RevPAR expectations for 2016. 
  • We are now projecting a bottoming-out scenario. We expect industry RevPAR to decline by 1.6% yoy (previously -5%). Based on our demand-supply model, we project that every +100k of visitor arrivals would result in 0.6% improvement in RevPAR while a 0.05-day increase in average length of stay would result in 1.4% improvement in RevPAR.


Expect 7% yoy growth in visitor arrivals (prev. +3% yoy)

  • Propelled by Chinese (+53% yoy), Indonesian (+10% yoy) and European visitors (+14% yoy), visitor arrivals rose by 14% yoy in 4M16 to 5.53m. We now expect 7% yoy growth in visitor arrivals to 16.3m for 2016 vs. Singapore Tourism Board's (STB) estimation of 0- 3% growth (15.2m-15.7m). 
  • Our new target implies a monthly average of 1.35m visitors, which is c.3% lower than the average in 4M16 and within the range of the “low” months of Feb and Apr 2016.


Decline in average length of stay partially offsets the positives

  • Nevertheless, the robust visitor arrivals were partially offset by the shortening average length of stay. The average length of stay shortened to 3.4 days in 4M16 vs. 3.61 days in 2015. 
  • Taking into account the declining trend, we expect visitor days for 2016 to increase at a less accelerated pace (as compared to visitor arrivals), by 3.7% yoy to 57.04m days.


No let up in incoming supply

  • On the supply-front, we expect hotel room supply to increase by 5.4% yoy to 64,698 rooms in 2016 (or 3,319 new rooms). We expect the operating environment to remain competitive as the 5.4% increase in supply outstrips the 3.7% growth in visitor days. 
  • Contrary to our previous expectations, the mid-tier segment performed the best, recording 3.1% improvement in RevPR in 4M16. We believe this was because a significant portion of the Chinese tourists were on group tours.


Hospitality remains our least preferred sub-sector

  • We reiterate our Overweight call on S-REITs, though hospitality remains our least preferred sub-sector. We do not anticipate a recovery in RevPAR in 2016 just yet. 
  • If an exposure in the sub-sector is required, our preference would be ART. Serviced residences are not as well-supplied as hotels. There could also be slight accretion from acquisitions as the group scales up to its target AUM of S$6bn. Key near-term risk could be the materialisation of Brexit, which would affect its UK portfolio value.

Highlighted companies


Ascott Residence Trust

  • HOLD, TP S$1.14, S$1.14 close
  • ART is our preferred pick in the hospitality sub-segment. Serviced residences are not as well-supplied as hotels. There could also be slight accretion from acquisitions as the group scales up to its target AUM of S$6bn.

CDL Hospitality Trust

  • HOLD, TP S$1.38, S$1.43 close
  • CDREIT recorded a 6.9% yoy drop in its RevPAR in 1Q16 as its Singapore properties struggled from poor corporate demand and renovations at two properties. It also faces headwinds from Maldives and Australia.

Far East Hospitality Trust 

  • HOLD, TP S$0.65, S$0.62 close
  • Our second order of preference would be FEHT as it is seemingly coping better with the competitive landscape. The REIT halted the slide in its RevPAR in 1Q16 as it aggressively reduced room rates to gain occupancy.




SREITs Peer Comparison 


CIMB's REIT Overview 2016-06-14




YEO Zhi Bin CIMB Securities | LOCK Mun Yee CIMB Securities | http://research.itradecimb.com/ 2016-06-14
CIMB Securities SGX Stock Analyst Report HOLD Maintain HOLD 0.65 Same 0.65
HOLD Maintain HOLD 1.14 Same 1.14
HOLD Maintain HOLD 1.38 Same 1.38


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