Singapore Hospitality REITs - UOB Kay Hian 2016-08-31: Tourist Wave Sweeps Big Spenders Away

REITs − Singapore Hospitality - UOB Kay Hian 2016-08-31: Tourist Wave Sweeps Big Spenders Away Singapore REIT CDL HOSPITALITY TRUSTS J85.SI  FRASERS HOSPITALITY TRUST ACV.SI  ASCOTT RESIDENCE TRUST A68U.SI 

REITs − Singapore Hospitality - Tourist Wave Sweeps Big Spenders Away

  • STB’s latest tourism performance report highlighted a clear weakening in per capita tourist hotel expenditure. This also better explains the puzzling disconnect between surging tourist arrivals and lower hotel RevPAR. 
  • Likely causes for the weaker spend include the influx of Chinese tourists with tighter purse strings, currency impact and a shorter stay. 
  • We prefer geographically-diversified hospitality stocks (ART, FHT) over Singapore-centric ones (CDREIT). 
  • Maintain OVERWEIGHT.



WHAT’S NEW


Missing piece of the puzzle revealed. 

  • The Singapore Tourism Board’s (STB) recently released 1Q16 tourism statistics shed some light on weakening island-wide hotel RevPAR despite surging tourist arrivals. Accommodation receipts per tourist fell 6.3% yoy to S$281, a 20.2% drop from 2014’s peak of S$352, and despite a 6.8% yoy increase in accommodation expenditure to S$1.16b.
  • In 1Q16, hotels reported lower RevPAR, down 2.3% yoy, despite a 13.8% yoy growth in tourist numbers. Hospitality REITs reported negative to flat RevPAR growth - CDREIT (- 6.9% yoy), FHT (-2.7% yoy) and FEHT (0% yoy).

Influx of Chinese tourists with tighter purse strings

  • Influx of Chinese tourists with tighter purse strings, with Chinese per capita expenditure on hotels down 5% yoy (-40% from the peak in 2014). The number of Chinese visitors rose 46.9% yoy in 1Q16, thanks in part to the STB’s concerted efforts to court Chinese tourists from secondary cities (Tianjin, Chongqing) through platforms like Alipay. 
  • Our channel checks suggest these visitors came in tour groups and are usually budget-conscious on accommodation. Singapore hospitality REITs also largely do not cater to such tour groups as they operate in the mid- and upper-tier segments.

Currency impact and lower average length of stay. 

  • At end-1Q16, of its top five tourism markets, the S$ has strengthened against the currencies of China (+5.9% yoy), Indonesia (+2.4% yoy), India (+8.2% yoy) and Australia (+1.1% yoy), and only declining against the yen (-4.6% yoy). 
  • We also observed a shorter stay in 1Q16, averaging about 3.5 days, down from 2015’s 3.6 days.

Supply wave overwhelms surge in tourist arrivals. 

  • 2015 saw 3,853 new rooms (up 6.8% yoy), which included the shock addition of 1,500-room Hotel Boss (mid-tier) in 4Q15, partially resulting in the back-end loaded supply for 2015. 
  • Accordingly, 1Q16 saw room rates decline 2.8% yoy (-3.7% qoq), while occupancy remained stable at 84.3% as increased visitor arrivals cushioned 2H15’s supply glut at the expense of rates charged by hoteliers.

Further pangs of indigestion from back-end loaded 2H16 supply. 

  • Some 1,925 rooms, which account for 67.2% of 2016F supply (2,866 rooms), are slated to hit the Singapore market. The mid-tier and upscale/luxury (segments account for 82.5% of 2H16 estimated supply of 1,925 rooms, according to consultant Horwath HTL. 
  • For the year, the mid-tier (49%) and the upscale/luxury (29%) segments account for 78% of room inventory. This may also partially explain the softer industry RevPar (-2.5% yoy) in 1H16 as the sector grapples with supply indigestion.


ACTION


STB forecast remains modest amid the exuberance. 

  • Despite the resilient growth in arrivals (up 12.5% yoy in 1H16), STB has retained its tepid forecast of 0-3% tourist growth for 2016. We maintain our expectation of a 5% yoy growth in arrivals to 16m visitors. We prefer to be cautious on growth in 2H16 arrivals as the recent outbreak of the Zika virus in Singapore has already prompted top inbound markets - Australia and South Korea - to issue travel advisories, in addition to rotational interest in the UK on a weaker sterling.
  • However, we reckon the healthy line-up of events later this year, such as the Singapore International Water Week and Unicity Global Convention, could underpin corporate travel.

We prefer geographically-diversified hospitality plays given supply-side headwinds for Singapore hoteliers. 

  • Maintain HOLD on CDL Hospitality as we believe the supply digestion combined with the disruptive effects of renovations (ongoing at CDREIT's Grand Copthorne and M Hotel) may only see operating performance (RevPAR, ADR) improve in the second half of the year. 
  • Maintain BUY on Ascott Residence Trust and Frasers Hospitality Trust, which have been laggard plays in the hospitality segment while offering diversification benefits.


SECTOR CATALYSTS

  • Pick-up in room rates.


KEY RISKS

  • A stronger S$.
  • Unanticipated new supply of hotels.



PEER COMPARISON






Vikrant Pandey UOB Kay Hian | Derek Chang UOB Kay Hian | http://research.uobkayhian.com/ 2016-08-31
UOB Kay Hian SGX Stock Analyst Report BUY Maintain BUY 1.37 Same 1.37
BUY Maintain BUY 1.01 Same 1.01
HOLD Maintain HOLD 1.55 Same 1.55


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