SG Hospitality Sector - OCBC Investment 2019-04-15: Hold Your Horses

SG Hospitality Sector - OCBC Investment Research | SGinvestors.io CDL HOSPITALITY TRUSTS (SGX:J85) ASCOTT RESIDENCE TRUST (SGX:A68U) FAR EAST HOSPITALITY TRUST (SGX:Q5T)

SG Hospitality Sector - Hold Your Horses




Expecting a weak 1Q19

  • Despite a strong rally for hospitality REITs YTD, we are likely looking at a soft 1Q19 in terms of RevPARs.
  • According to recent data from Singapore Tourism Board (STB), visitor arrivals were up 3.83% y-o-y in Jan and 0.05% y-o-y in Feb, with visitor days up 5.3% and 3.3% correspondingly. Meanwhile, STB data reflected poor RevPAR performance from Upscale and Mid-tier hotels for the first two months of the year:
    • Upscale hotels posted -3.8% and -6.5% y-o-y RevPAR growth for Jan and Feb respectively, while
    • Mid-tier hotels posted 1.0% and -4.3% y-o-y RevPAR growth.
  • Our channel checks have revealed that March was also a subdued month for the industry.
  • Given that the supply situation remains favourable, we believe the softness in RevPAR has more to do with the absence of events that were held last year (e.g. the biennial Singapore Airshow). Relative to 2017 figures, upscale RevPAR was up 0.5% and 0.7% in Jan and Feb respectively, while mid-tier RevPAR was up 9.4% in Jan but down 0.8% in Feb.
  • As most of the local assets owned by hospitality S-REITs are either Upscale or Mid-Tier, we expect a weak set results for SG-heavy REITs like FAR EAST HOSPITALITY TRUST (SGX:Q5T) and CDL HOSPITALITY TRUSTS (SGX:J85) for 1Q19.


CDL Hospitality Trusts: Other drag factors in 1Q but positive catalysts from 2Q19 onwards

  • While CDL HOSPITALITY TRUSTS (SGX:J85) previously disclosed that its Singapore RevPAR increased by 5.1% y-o-y for the first 27 days of Jan 2019. We believe that – subsequent to robust RevPAR growth seen in these first 27 days – CDL Hospitality Trusts’s SG RevPAR moderated closer to what was seen in the industry, as reflected by STB’s figures. Beyond the soft quarter locally, we believe the REIT’s 1Q19 results will be further dragged down by the closure of Dhevanafushi Maldives Luxury Resort as well as the asset enhancement initiatives at Orchard Hotel. Beyond 1Q19, we anticipate
    1. the opening of the rebranded Raffles Maldives Meradhoo Resort in early 2Q19, and
    2. improved contributions from Orchard Hotel post refurbishment.
  • Post-renovations, Orchard Hotel will be one of only four hotels in Singapore with a ballroom that can accommodate 1K or more guests.


Ascott Residence Trust and Far East Hospitality Trust have inched up toward our fair value



Downgrade sector to NEUTRAL






Deborah Ong OCBC Investment Research | https://www.iocbc.com/ 2019-04-15
SGX Stock Analyst Report HOLD MAINTAIN HOLD 1.560 SAME 1.560
HOLD DOWNGRADE BUY 1.250 SAME 1.250
HOLD DOWNGRADE BUY 0.680 SAME 0.680



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