SG Hospitality Sector - OCBC Investment 2018-11-30: Get Ready To Surf The Wave!


SG Hospitality Sector - Get Ready To Surf The Wave!

  • RevPAR growth pick-up in 4Q, 2019. 
  • OUEHT at attractive valuations. 
  • 3Q earnings recap. 


Mixed bag for 9M18 and 3Q18 DPU.

  • For the counters we cover, 9M18 DPU growth ranged from -4.1% to 2.4% y-o-y while 3Q18 DPU ranged from -5.9% to +7.7%.

Also, mixed bag for 3Q18 SG Hotel RevPAR.

  • For counters under our coverage, y-o-y growth in SG hotel revenue per available room (RevPAR) ranged from between -3.7% to ~ +3% for 3Q18. See Exhibit4 in the PDF report attached. Not included in the exhibit is OUE Hospitality Trust (SGX:SK7, OUEHT)’s Crowne Plaza Changi Airport – which continues to stabilize and recorded a 6.3% y-o-y increase in RevPAR.

Divergence in 3Q18 SG Serviced Residences (SR) RevPAU.

Value emerging after sell-down.

  • Hospitality REITs under our coverage are currently trading at FY17 dividend yields of 6.2% to 7.4%, FY18F yields of 6.0% to 7.2%, and FY19F yields of 6.2% to 7.5%.
  • We are generally optimistic about RevPAR growth in 2019 and find that some of the REITs under our coverage offer particularly compelling unit prices given this growth outlook.

OVERWEIGHT rating on SG hospitality.

  • OUEHT remains our most favored pick out of the hospitality stocks under our coverage.
  • Given that we expect a three-year runway of positive SG RevPAR growth going forward, we favor generally favor pure-plays - OUEHT and FEHT over more geographically diversified picks - ART and CDL Hospitality Trusts (SGX:J85, CDLHT).
  • That said, CDLHT’s DPU stands to improve on a y-o-y basis in FY19 with the upcoming completion of its Maldives resort renovation (resort scheduled to open by the start of 1Q19) as well as the lower base for the New Zealand asset. We believe, however, that CDLHT’s current stock price could be more attractive.


  • In 9M18, AOR, ARR, and RevPAR grew by +1.7 ppt, +1.6% and +3.3% y-o-y respectively. The +3.3% y-o-y RevPAR growth in 9M18 compares to the -1.7% growth in 2017, -4.9% growth in 2016 and -4.5% growth in 2015.
  • For 2018, key data points to note are the 0.1% projected increase in hotel room supply, 5.5% increase in visitor days for 9M18 (on the back of a 7.5% increase in tourist arrivals), and 3.0%-3.5% increase in Singapore GDP in 2018.
  • Going forward, we expect the pace of RevPAR growth to increase in 4Q18 and 2019, given the steady increase in demand (especially leisure) coupled with only a mild increase in room supply.
  • Please refer to the following sections on Supply-side and Demand-side analysis for more details.

RevPAU performance by hotel tiers

  • Looking at 9M18 RevPAR trends by segment, the Economy segment seems to have posted the most resilient performance (+6.4% y-o-y growth), followed by Luxury hotels (+5.1% y-o-y growth), then Mid-Tier (+3.1% y-o-y growth), then finally Upscale hotels (+2.1%).

SUPPLY-SIDE ANALYSIS: 2.9% growth in room supply expected

  • According to Horwath HTL forecasts (as published in the CDLHT 3Q18 presentation), the total room stock is expected to increase 0.1% in 2018, 2.9% in 2019, and 0.9% in 2020.
  • We note that the room supply grew at a CAGR of 5.1% (actual) from 2011 to 2017, vs. the 1.3% CAGR estimate from 2017 to 2021F. We see 1.3% as a low handle/threshold for demand to outpace, and believe that the limited injection of supply in the next few years will pave the way for strong RevPAR growth.

DEMAND-SIDE ANALYSIS: Growth to be supported by leisure demand

  • 9M18 visitor days were up 5.5% y-o-y on the back of 7.5% increase in tourist arrivals.
  • Looking forward to 2019, we expect overall demand to be led by robust growth in the leisure segment. We are more cautious on corporate demand and expect it to remain muted in the coming quarters given uncertainty surrounding the trade war.
  • Exhibit 19 in the PDF report attached shows monthly visitor arrivals (Jan to Dec), and the steady increase in numbers through the years. In this regard, we believe that the continued efforts and investments by the Singapore Tourism Board are crucial in supporting this growth. Examples of their initiatives or projects they have supported can be seen in Exhibits 22 and 23.

VALUATIONS: NPI yield compression since 2011

  • Going by the broad trend indicated by CDLHT’s assets, it appears that SG NPI yields have compressed over the past seven years due to a decline in NPIs with relatively stable valuations. 
  • We expect NPIs to pick up over the next three years and for NPI yields to increase as a result. Exhibit 26 in the PDF report attached shows that valuations per key have remained relatively stable.


Ascott Residence Trust (ART) – Rating: HOLD, Fair Value: S$1.03

  • We continue to like ART’s portfolio of assets with its strong brand recognition and high geographical diversification. Gearing stands at a reasonable rate of 36.4% as at 30 Sept 2018, with ~82% of ART’s total borrowings on fixed interest rates.
  • The latest set of quarterly results suggests a more optimistic outlook for many of the geographies within ART’s portfolio. That said, we do not find current unit prices particularly compelling for the REIT with its 6.3% FY19F yield.
  • See recent report: Ascott Residence Trust - SG RevPAU Up 19% Y-o-y!

CDL Hospitality Trusts (CDLHT) – Rating: HOLD, Fair Value: S$1.45

  • Looking ahead, the rebranded Raffles Maldives Meradhoo Resort (formerly Dhevanafushi) is scheduled to open by the start of 1Q19, and we see CDLHT’s SG-heavy portfolio as being well-poised to ride the hospitality up-cycle.
  • As we are projecting S$2m in capital distributions next year (significantly lower compared to the S$5.7m already announced in 9M18), FY19F DPU is expected to grow 5.0% y-o-y despite a projected 9.3% increase in NPI.
  • We find CDLHT reasonably fairly priced as at 29 Nov’s close – CDLHT is trading at a 6.2% FY19F yield, ~70 bps below its 5 year mean. However, given that CDLHT’s gearing stands at a relatively low 33.8% as at 30 Sept 2018, we note that accretive acquisitions remain an upside risk to our forecasts.
  • See recent report: CDL Hospitality Trusts - Happy Surprise On Halloween

Far East Hospitality Trust (FEHT) – Rating: BUY, Fair Value: S$0.675

  • Going forward, we expect the current pace of RevPAR growth (i.e. +3% y-o-y for the wider hotel portfolio in 9M18) to continue in the last quarter of the last quarter of the year, before picking up speed in 2019. As a SG pure-play with a large no. of assets within its portfolio, we see FEHT as one of the prime candidates to play on the hospitality up-cycle.
  • We are somewhat concerned with FEHT's relatively higher gearing of 40.4% as at 30 Sept 2018 as it heightens the prospect of equity fundraising. That said, we believe acquisitions are not a priority for the management in the medium term (till end of 2019) given that the Sentosa project is coming on-stream next year.
  • See recent report: Far East Hospitality Trust - Attracting Tourists From Near And Far

OUE Hospitality Trust (OUEHT) – Rating: BUY, Fair Value: S$0.79

  • We continue to expect 2019 to be a strong year for Singapore hospitality and see SG pure-play, OUE Hospitality Trust (OUEHT), as a key beneficiary of this trend. Going forward, we note that CPCA is close to reaching the threshold for minimum rent, and expect it to surpass this threshold next year especially after Jewel Changi Airport opens.
  • We attribute recent share price weakness to a dilutive rights issue by OUE Commercial Trust (SGX:TS0U, OUECT) which shares a sponsor with OUEHT. Our base case is that OUEHT will not pursue an acquisition of its ROFR-asset Oakwood Premier in the near-term (see our 20 Sept company report), and that even if it does, a large rights issue will likely be unnecessary.
  • Third-party acquisitions by OUEHT are more likely, but given the wide variety of assets available overseas, we believe that deals pursued will likely be at least “DPU neutral” for unitholders, i.e. additional income from asset will offset the enlarged unit base and any associated increase in interest costs.
  • As at 29 Nov’s close, OUEHT is trading at a 7.5% FY19F yield, ~60 bps and ~130 bps above FEHT’s and CDLHT’s respectively, as well as near its historical average since listing despite having a rosier outlook than before. We continue to find OUEHT’s current price very attractive.
  • See recent report: OUE Hospitality Trust - A Steal At This Price!


  • Hospitality REITs under our coverage are currently trading at FY18F dividend yields of 6.0% to 7.2% and FY19F yields of 6.2% to 7.5%. After the sell-down in REIT prices, we see value in the sector and have made upgrades to all the stocks in our coverage (both from Sell to Hold, and from Hold to Buy).
  • OUEHT is our most favoured pick.
  • Given the attractive valuations, we upgrade the sector from Neutral to OVERWEIGHT.

Deborah Ong OCBC Investment Research | https://www.iocbc.com/ 2018-11-30
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