Singapore REITs - UOB Kay Hian 2016-06-17: Hospitality REITs ~ Good April For Hoteliers

Singapore REITs - UOB Kay Hian 2016-06-17: Hospitality REITs ~ Good April For Hoteliers Singapore REIT STARHILL GLOBAL REIT P40U.SI  CAPITALAND MALL TRUST C38U.SI  CDL HOSPITALITY TRUSTS J85.SI 

REITs – Singapore: Hospitality REITs: Good April For Hoteliers

  • April was a good month for hoteliers with substantial RevPAR expansion observed, though channel checks indicate a repeat performance is unlikely. 
  • Sustained double-digit growth in visitor arrivals is a good buffer for incoming room supply with the phenomenal growth in Chinese visitors allowing China to overtake Indonesia as Singapore’s largest inbound market ytd. 
  • We maintain our expectation of 5% yoy growth in 2016 tourist arrivals vs STB’s more sombre 0-3% forecast. 
  • Maintain OVERWEIGHT on the sector.



WHAT’S NEW


Good April for hoteliers  

  • The hospitality market had much to cheer about in the month; with overall RevPAR figures expanding by about 4% yoy. 
  • Positive RevPAR growth was observed across the various sub segments. This was bolstered by the stellar performance of upscale, mid-tier and economy hotels, which posted respective yoy growth rates of 6.9%, 10.7% and 6.2% and leading to a RevPAR of S$228.9, S$154.6 and S$83.3 respectively. Luxury hotels’ RevPAR saw a slight uptick of 0.2% yoy to S$361. 
  • Overall RevPAR for 4M16 ytd showed a slight decline of 0.8% yoy.

Though channel checks suggest an exception in contrast to the norm. 

  • Despite April registering the highest RevPAR yoy growth rate since Feb 14, our channel checks reveal that April’s performance is unlikely to be indicative of 2Q16’s performance. 
  • The exceptional results could have been attributable to events like Food & Hotel Asia, as well the Easter holidays, with Apr 15 and Mar 16 having seen weaker performances (Easter typically leads to softer corporate demand).

Continued double-digit growth in tourist arrivals good buffer for incoming supply. 

  • The month of April saw visitor arrivals grow 14.4% yoy to hit about 1.4m travellers. 
  • For 4M16, overall visitor arrivals of about 5.5m translated to a 14.1% yoy expansion. April’s exuberant figure was propelled by positive growth in the five largest inbound markets - Indonesia, China, Malaysia, Australia and India – which accounted for 55.3% of total international visitors in April. This could well cushion the impact from the 3,930 rooms slated for market absorption in 2016 (6.4% yoy supply expansion), despite visitor days growing at a comparatively slower 5.4% ytd.

Chinese visitors show no signs of letting up 

  • Since overtaking Indonesia as Singapore’s largest inbound market in February, Chinese tourists continue to arrive at a blistering rate, reaching 268,026 arrivals (+74.3% yoy) in April, about 3.6% shy of the record numbers driven by February’s CNY holidaymakers. 
  • For 4M16, Singapore’s largest inbound market grew 53.2% yoy to reach 1.0m visitors, making up about 18.4% of overall arrivals. 
  • This was likely underpinned by inbound travel from tier-2 cities in China, such as Chongqing, Tianjin and Nanjing, bolstered in part by marketing campaigns launched by Changi Airport Group (CAG) and the STB.

Watch to see if Chinese visitors can sustain the long upward march. 

  • Against the backdrop of a higher visitor base from April-December last year, further growth in Chinese visitors would point to a material coup for Singapore’s hospitality scene. 
  • Signs of a pick-up in Chinese visitors only started to manifest in April last year, compounding the prominence of the month’s growth in Chinese arrivals. 
  • We note that phenomenal growth in previous months stemmed in part from a lower base effect after languishing numbers from Oct 13 onwards.

Reassuring signs of recovery from Indonesian visitor arrivals. 

  • Despite falling to second place in the inbound market (currently accounting for 16.6% of total visitors), signs of stabilising demand have emerged over the past four months. 
  • Indonesian arrivals witnessed mild growth of 3.8% yoy to reach 0.2m visitors in April, bringing growth in 4M16 to 9.6% yoy, with arrivals at 0.9m ytd. The slower growth in April could likely be owed much to a strengthening Singapore dollar against the rupiah since March this year. However, we opine that the fruits of the concerted efforts to tap into Indonesia’s secondary cities are evident in Indonesian visitor numbers for 4M16. 
  • Recall that Jetstar Asia launched routes to Palembang and Pekanbaru in end-15, while the STB also expanded its presence in areas like Surabaya and Bandung.

STB’s forecast remains modest amid the exuberance. 

  • Despite the resilient demand ytd, STB has retained its tepid forecast of 0-3% tourist growth for 2016. The approximate 14% yoy increase in arrivals in 4M16 lends credence to our expectation of a 5% yoy growth in arrivals to 16m visitors. 
  • We reckon the healthy line-up of events this year, such as the Singapore debut of prominent medical congresses (ISMRM, SpineWeek 2016), will continue to spur corporate bookings.


ACTION


Watch out for re-rating of Hospitality REITs on stabilisation of room rates and sustained tourist arrival growth. 

  • Since our last hospitality note “Sounding The Gong On Tourist Arrivals” dated 30 Mar 16, our key pick CDL Hospitality Trust has seen an estimated 11% upward rerating. 
  • We opine that CDREIT will remain a key beneficiary of a potential turnaround in the domestic hospitality market, (71% Singapore assets by value), particularly as refurbishments at Grand Copthorne and M Hotel complete in 2H16. CDREIT currently trades at a reasonable 0.9x 2016F P/B with a forward yield of 6.9%. 
  • Frasers Hospitality Trust and Ascott Residence Trust are also likely beneficiaries from a re-rating of the segment.


SECTOR CATALYSTS

  • Pick-up in room rates.


KEY RISKS

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




PEER COMPARISON 




Vikrant Pandey UOB Kay Hian | Derek Chang UOB Kay Hian | http://research.uobkayhian.com/ 2016-06-17
UOB Kay Hian SGX Stock Analyst Report BUY Maintain BUY 1.55 Same 1.55
BUY Maintain BUY 1.36 Same 1.36
BUY Maintain BUY 0.97 Same 0.97


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