SG Hospitality Sector - OCBC Investment 2018-07-10: A Quick Read Post June

SGinvestors.io

FAR EAST HOSPITALITY TRUST SGX:Q5T CDL HOSPITALITY TRUSTS SGX:J85 ASCOTT RESIDENCE TRUST SGX:A68U

SG Hospitality Sector - A Quick Read Post Jun

• Negative total returns since Jun.
• Remain cautious on Interest Rates risk.
• Mid-Tier hotels look to outperform.

Total returns since start of Jun: Negative, but quite a range

• Since the start of Jun to 9 Jul’s close, hospitality S-REITs under our coverage have each posted a total return ranging from -0.9% (Ascott Residence Trust) to -5.3% (Far East Hospitality Trust). This compares to -5.8% for the STI, the - 9.1% for FSTREH, and -0.2% for FSTREI over the same period.

Key risk: Same old interest rate hikes

• While valuations now look more attractive than they were previously, the key risk in our view is still that of rising interest rates, and the impact of that trend on the dividend yields investors will subsequently demand from REITs. 
• The yield spread for the FSTREI currently stands at 367 bps, ~1.1 standard deviations below its 5-year average – by no means attractive. 
• FY18F yields for the hospitality REITs under our coverage now range from 6.2% (CDL Hospitality Trusts) to 6.8% (Far East Hospitality Trust). ( This analyst report is shared on SGinvestors.io )

Visitor arrivals: Continue to post decent growth in 2Q

• For 2Q, Singapore Tourism Board’s latest figures show a respectable +4.9% y-o-y growth in April’s visitor arrivals, although more tepid than the +7.3% y-o-y growth we saw for the Jan-Mar period. Correspondingly, visitor days are up +2.5% y-o-y in Apr.
• Changi Airport’s statistics also appear to indicate decent pace of growth, with passenger movements up +5.1% y-o-y in Apr and +5.8% y-o-y in May.

RevPAR growth: Mid-Tier outperforms Upscale; look to FEHT

• On the other hand, RevPARs for Economy hotels are up +13.0% in Apr, followed +6.6% for Mid- Tier, +4.1% for Luxury and +0.4% for Upscale hotels. We believe that Mid-Tier hotels are set to outperform Upscale hotels in terms of y-o-y growth as we progress into the year, given the relative underperformance of the former last year with the many Mid-Tier hotels that came on-stream.
• Given that Far East Hospitality Trust’s (FEHT) assets are concentrated in the Mid-Tier segment, we expect them to enjoy robust RevPAR growth in 2Q and onwards. Recall that FEHT’s hotel assets posted a 3.3% growth in RevPAR in 1Q17. 
• With interest rate risks in mind, our top pick remains Far East Hospitality Trust (Rating: BUY; Fair Value: S$0.735) . Maintain NEUTRAL. ( This analyst report is shared on SGinvestors.io )

Stock	Price	Fair Value	Rating
ASCOTT RESIDENCE TRUST	1.09	1.14	HOLD
CDL HOSPITALITY TRUSTS	1.59	1.60	HOLD
FAR EAST HOSPITALITY TRUST	0.62	0.735	BUY
HOTEL PROPERTIES LTD	3.50	4.74	BUY
OUE HOSPITALITY TRUST	0.775	0.84	HOLD

Deborah Ong OCBC Investment Research | https://www.iocbc.com/ 2018-07-10

SGX Stock Analyst Report BUY Maintain BUY 0.735 Same 0.735

HOLD Maintain HOLD 1.600 Same 1.600

HOLD Maintain HOLD 1.140 Same 1.140