Singapore REITs - Maybank Kim Eng 2018-09-14: Checking In

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

Singapore REITs - Checking In

Hospitality is our favourite S-REIT sub-sector.
6.4 - 7.2% 2018 DPU yield is already the highest amongst S-REITs. Still, our 4-5% DPU CAGR over 2018-2020E may not fully capture the upside to cash flows. RevPARs now enjoy a recovery in visitor arrivals, tightening room supply and restoration of pricing power. These would assert through to cashflows against a compressed 2017 RevPAR base; Tail winds from positive carry in overseas purchases could accelerate the acquisition pipeline, which are de-risked through master leases and minimum income guarantees. Debt headroom is 10-40% of AUM.
We initiate the sector with POSITIVE. CDL Hospitality Trusts (SGX:J85) is our top pick.

Strong supply and poor tourist arrivals in 2014-2015 trimmed RevPARs to 2011 levels. We see Singapore hotels ending their longest-ever RevPAR downcycle, as evident from improving RevPAR among the listed REITs.
Tourism growth, buttressed by Chinese inbound visitors and tight demand for rooms, have pushed occupancies up from 84% to 87%. Hoteliers have also started to see improved bookings from higher-yielding corporate customers.
We forecast 5-8% RevPAR growth for 2018-20E, preferring hotels to serviced residences as they should command stronger pricing power against contracting supply. The sector’s recovery should be bolstered by easing supply, with new hotel rooms expected to slow to a 1.3% CAGR in 2017-20E from 5.5% in 2014-17.

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Overseas growth opportunities appeal to hospitality REITs, which they mostly de-risk through master leases and higher fixed-rental structures. We see DPU upside from potential acquisitions.
We believe deal momentum, especially in Europe, could pick up, especially given positive carry for EUR-denominated debt funding. Returns on CDLHT’s recent deals should improve alongside stronger demand-led fundamentals.

We see improving occupancies and RevPARs as near-term catalysts for the sector. We initiate coverage of four REITs and see current levels as a good entry point. CDLHT and FHT should be best positioned for acquisition growth, given their debt headroom and visible sponsor pipelines. We also like domestic-pure play, FEHT, which we expect to deliver the strongest DPU CAGR of 6.2%.
Hospitality REITs are trading at their historical mean DPU yield, and we see scope for yields to compress further on stronger RevPAR growth momentum, and DPU-accretive deals.

Investment thesis, sector prospects, valuation metrics and risk factors of hospitality REITs available in the report attached.

Chua Su Tye Maybank Kim Eng Research | https://www.maybank-ke.com.sg/ 2018-09-14

SGX Stock Analyst Report BUY Maintain BUY 1.80 Same 1.80

BUY Maintain BUY 0.750 Same 0.750

HOLD Maintain HOLD 1.550 Same 1.550

BUY Maintain BUY 0.800 Same 0.800