S-REIT - CIMB Research 2018-04-09: Singapore Hotels +5.4% Y-o-Y Visitor Arrivals For Jan 2018

Singapore REITs Hotel S-REITs CDL HOSPITALITY TRUSTS J85.SI FAR EAST HOSPITALITY TRUST Q5T.SI OUE HOSPITALITY TRUST SK7.SI

REIT - Singapore Hotels +5.4% Yoy Visitor Arrivals For Jan

STB reported a 5.4%/1.2% y-o-y increase in visitor arrivals/visitor days for Jan 2018, which is an encouraging start, in our view. Industry RevPAR was flat, at +0.2% y-o-y.
STB expects growth in both visitor arrivals and tourism receipts for 2018F. We continue to expect 7% y-o-y uplift in industry RevPAR.
For hospitality S-REITs, we continue to expect 5% y-o-y recovery in RevPAR. With inorganic contributions, we forecast the REITs to deliver 0.6-8.9% DPU growth.

With minimal new supply further out, the cyclical recovery could lead to a potential multi-year upswing.
Maintain Overweight with CDREIT as our preferred pick in the sub-sector.

Singapore Tourism Board (STB) recently released Jan 2018 statistics on the hospitality industry. It reported 5.4% y-o-y growth in visitor arrivals for Jan 2018. Interestingly, the top-sourced market, China registered an 8% y-o-y drop in arrivals. This was more than offset by growth in Indonesian (+3.4%) and Indian (+35%) arrivals.
Visitor days, which is more indicative of hotel demand, increased by 1.2% in Jan 18. Average length of stay remained stable at 3.4 days (2017: 3.4 days; 1M17: 3.5 days).

Jan 2018 data represented an encouraging start for Singapore hotels, in our view. That said, we are cognisant that one swallow does not a summer make.
We note that y-o-y growth in Jan 2018 could have been boosted by the fact that Lunar New Year occurred in Jan in 2017 (fewer visitors). While Lunar New Year occurred in Feb this year, we believe that the effect was mitigated by the mega trade event, Singapore Airshow (biennial event).

STB expects growth in both visitor arrivals and tourism receipts.
To recap, 2017 was a bumper year for Singapore tourism. Visitor arrivals/visitor days grew 6.2%/4.6% y-o-y to 17.4m/58.8m days; tourism receipts rose 3.9% y-o-y to S$26.8bn. For 2018, STB expects growth in both visitor arrivals and tourism receipts.
Changi passenger movements, a useful leading indicator for visitor arrivals, recorded 3.1% y-o-y increase in movements for 2M18. Meanwhile, our channel checks revealed that the demand for hotels in 1Q18 was healthy.

Industry RevPAR was flattish for Jan 2018, at +0.2% y-o-y. We highlight that STB has updated its data estimation methodology for the hotel industry. Luxury hotels registered a 10.6% y-o-y decline while mid-tier and economy recorded strong gains of 8.3% and 11.1% respectively.
To recap, industry RevPAR inched down 1.6% y-o-y in 2017. Luxury hotels booked 3.2% y-o-y decrease; economy booked 8.6% gain.
With supply tapering off and demand continuing to dial up, we continue to project 7%yoy growth in RevPAR for 2018F.

For hospitality S-REITs, we continue to expect 5% y-o-y recovery in RevPAR. This is at the top end of the respective managers’ guidance of 2-5% improvement. Together with inorganic acquisitions, we project CDREIT to deliver 6.2% y-o-y growth for FY18F DPU; FEHT to deliver 8.9% and OUEHT, 0.6%.
Additionally, we note that despite the state of emergency in Maldives, visitor arrival growth was healthy at 16% y-o-y in 2M18. Hence, encouraging data could ease investors’ concerns on CDREIT’s exposure to Maldives.

We continue to call for an earlier- and stronger-than-anticipated recovery in industry RevPAR. Unlike the other sub-segments, such as residential and office, which could face higher supply come 2021F, hotels have minimal new supply further out. Hence, the cyclical recovery could potentially lead to a multi-year upswing.
Maintain Overweight on hospitality sub-sector with CDREIT as our preferred pick. Sector downside risks include higher increase in interest rates and slower-than-expected recovery for Singapore hotels.

CDREIT is the bellwether hospitality stock and our preferred pick in the sub-sector. Aside from Singapore hotels’ recovery, acquisitions could catalyse the stock. As at end-FY17, CDREIT had a gearing of 32.6%.

Driven by a recovery in Singapore hotels and inorganic contribution from Oasia Hotel Downtown (acquisition completed on 02 Apr 2018), we project FEHT to deliver 8.9% y-o-y DPU growth in FY18F.

We anticipate that higher hospitality contributions, a relatively more stable Mandarin Gallery and lower finance expenses would offset the absence of income support in FY18F.

YEO Zhi Bin CIMB Research | LOCK Mun Yee CIMB Research | http://research.itradecimb.com/ 2018-04-09

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