SG Hospitality - OCBC Investment 2017-05-29: Supply Injection Looks To Be More Spread Out

SG Hospitality - OCBC Investment 2017-05-29: Supply Injection Looks To Be More Spread Out S-REITs Singapore Hospitality REITs OUE HOSPITALITY TRUST SK7.SI ASCOTT RESIDENCE TRUST A68U.SI CDL HOSPITALITY TRUSTS J85.SI FAR EAST HOSPITALITY TRUST Q5T.SI

SG Hospitality - Supply Injection Looks To Be More Spread Out

  • Recap of 1Q17 results.
  • 2Q17 supply injection pushed back.
  • Maintain BUY on OUEHT.

1Q17 DPU YoY growth ranged from -13.9% to +18.2% 

  • 1Q17 results for all the hospitality REITs under our coverage were within expectations. 
  • 1Q17 YoY DPU growth was -13.7% for Ascott Residence Trust (ART), +9.0% for CDL Hospitality Trusts (CDLHT), -13.9% for Far East Hospitality Trust (FEHT) and +18.2% for OUE Hospitality Trust (OUEHT)
  • OUEHT saw greater NPI contributions from Mandarin Gallery and the enlarged Crowne Plaza Changi Airport, while CDLHT’s results was boosted by its NZ NPI contributions, which increased by 90% YoY.
  • ART’s DPU was impacted by the dilution from its rights issue earlier this year, as well as a one-off net realized exchange gain that contributed to a -8.0% decline in DI; stripping out the equity financing and realized exchange gain, 1Q17 DPU would have increased 4.5% YoY. 
  • FEHT’s DPU was affected by a 13.1ppt drop in its Serviced Residences (SR) occupancy, though we note that the occupancy has recovered since the end of 1Q.

Decline in 1Q17 RevPAR 

  • Given that the hospitality REITs under our coverage own hotels mainly in the Mid-tier and Upscale tiers, RevPAR declines reported by the REITs are in line with STB figures reported for 1Q17. 
  • 1Q17 RevPAR for CDLHT’s hotel portfolio, OUEHT’s Mandarin Orchard, and FEHT’s hotel portfolio clocked declines of -0.8%. -2.3% and -4.6% YoY, respectively. 
  • As for serviced residences (SRs), 1Q17 RevPAU for ART’s portfolio and FEHT’s portfolio dropped 11.4% and 14.0% YoY respectively.

Corporate conditions remain a challenge 

  • We continue to expect mild to flattish growth in leisure demand for FY17 with 1Q17 visitor days clocking a +2.3% YoY increase. 
  • We note that several of the hotels that were previously expected to come on-stream in 2Q17 have since pushed back their opening till late 2H17. With a better spaced out supply injection, we expect more evenly spread mid-single digit YoY declines in hotel RevPAR for the remaining three quarters of the year. 
  • Nonetheless, corporate demand is expected to remain a challenge. We note that CDLHT has rallied by an impressive ~21% YTD on its solid results but find the REIT already reasonably priced against our FV of S$1.51 (6.3% consensus forward yield and 1.1x P/B). 
  • Our top pick remains OUEHT [BUY; FV: S$0.75]. Do refer to the latest S-REITs Tracker for a summary of our individual REIT ratings and useful metrics across the various REIT sub-sectors.
  • We maintain NEUTRAL on the hospitality sector.

Deborah Ong OCBC Investment | http://www.ocbcresearch.com/ 2017-05-29
OCBC Investment SGX Stock Analyst Report BUY Maintain BUY 0.750 Same 0.750
HOLD Maintain HOLD 1.090 Same 1.090
HOLD Maintain HOLD 1.510 Same 1.510
HOLD Maintain HOLD 0.600 Same 0.600