CDL HOSPITALITY TRUSTS (SGX:J85)
FAR EAST HOSPITALITY TRUST (SGX:Q5T)
ASCOTT RESIDENCE TRUST (SGX:A68U)
FRASERS HOSPITALITY TRUST (SGX:ACV)
Singapore REITs 2019 Outlook - Hospitality REITs
Hospitality recovery after 4-year downcycle
- Hospitality remains our preferred segment as it recovers from a low RevPAR base after a 4-year downcycle. We forecast 5-8% RevPAR growth for 2019-20E, preferring hotels to serviced residences; they should command stronger pricing power against contracting supply.
Occupancy dipped slightly in Oct-Nov 2018 but RevPAR has been growing for all room types.
- 4Q is seasonally the weakest quarter for the hospitality sector, with its typically lowest occupancy of 80-85% vs 80-92% in 1Q-3Q. Having increased 0.6% y-o-y in Nov and 6.6% in 11M18, visitor arrivals are on track to top the Singapore Tourism Board’s (STB) 4% target for 2018.
- Our economists believe that the Chinese tourism boom has been showing signs of fatigue since late 2018. That said, they remain confident in the region’s long-term tourism prospects (see ASEAN Economics - China Tourists: Losing Altitude on 14 Jan 2019). We expect the STB to stick to its guidance range, as events are being ramped up for Singapore’s bicentennial celebrations in 2019.
- While Chinese visitors rose just 6.6% y-o-y in 11M18, those from India and Malaysia were up a good 14.5% y-o-y and 7.5% y-o-y respectively. We think growth in Australian visitors, Singapore’s fifth-largest tourist market, could be supported by more favourable AUD/SGD exchange rates in the near term.
Importantly, we believe the sector’s recovery will be strengthened by easing supply.
- New hotel rooms are set to slow to a 1.3% CAGR in 2017- 20E from 5.5% in 2014-2017. We also see levers from overseas investments, which are mostly de-risked through master leases and minimum rent guarantees. We think deal momentum in Europe could pick up, given positive carry on low EUR funding costs.
Hospitality REITs
- CDL HOSPITALITY TRUSTS (SGX:J85) is our top pick, as its scale and liquidity render it a good proxy for a sustained recovery in Singapore’s hospitality sector. Meanwhile, its overseas expansion has gained traction, with its continued push into Europe supported by positive carry from low funding costs. Low gearing of 33.8% and an estimated SGD600m of debt headroom suggest upside from potentially DPU-accretive deals.
- FAR EAST HOSPITALITY TRUST (SGX:Q5T) provides the only pure exposure to our expected rebound in the hospitality segment. Rising contributions from its recently-acquired Oasia Downtown, an expected 5% y-o-y annual recovery in hotel RevPARs and management fees from three Sentosa properties opening this year are expected to anchor its strongest 6% DPU CAGR in FY18-20E. We see strong DPU upside potential from its higher Singapore RevPAR sensitivity and visible sponsor’s ROFR pipeline.
Chua Su Tye
Maybank Kim Eng Research
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https://www.maybank-ke.com.sg/
2019-01-17
SGX Stock
Analyst Report
1.750
SAME
1.750
0.750
SAME
0.750
1.150
SAME
1.150
0.800
SAME
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