SG Hospitality Sector - OCBC Investment 2019-05-08: Since Sector Downgrade, Flat To Negative REIT Returns

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 - Since Sector Downgrade, Flat To Negative REIT Returns

  • 1Q19 RevPAR recap.
  • 2Q19: Apr was likely challenging.
  • Maintain NEUTRAL on sector.



Flat to negative returns since our sector downgrade



1Q19 RevPARs were indeed soft, except for Ascott Residence Trust’s SG assets

  • In our last sector report on 15 Apr: SG Hospitality - Hold Your Horses, we noted that 1Q19 local RevPARs were likely to be soft, given feedback from channel checks as well as industry figures. Indeed, Far East Hospitality Trust and CDL Hospitality Trusts posted +0.7% and -2.4% 1Q RevPAR growth for their Singapore hotels.
  • There are a few caveats to note. Without the positive skew from the Oasia Hotel Downtown acquisition, we estimate that Far East Hospitality Trust’s SG hotel RevPAR growth probably came in closer to -3%. On the other hand, CDL Hospitality Trusts’s REIT Manager reported that RevPAR growth for its SG hotels was +0.4% if they exclude out-of-order inventory.
  • Looking at 1Q19 Singapore Tourism Board statistics, which were published after 1Q REIT results releases, visitor arrivals grew 1.0% y-o-y while Upscale and Mid-Tier RevPAR dropped 5.9% and 3.3% y-o-y respectively. Ascott Residence Trust’s SG assets bucked the trend, posting a 22% RevPAU growth on the back of higher demand – the disparity is likely a result of those assets being serviced residences as opposed to hotels, and operating in a higher tier.


2Q19 likely to face headwinds as well, especially for April

  • Looking ahead, we continue to expect RevPAR softness for 2Q19, especially for April. Biennial event Food & Hotel Asia (FHA), which attracted 55K trade visitors (40% overseas) from 24-27 April last year, was absent this year.
  • For the first 25 days of Apr 2019, CDL Hospitality Trusts’s REIT manager disclosed that RevPAR for the REIT’s SG hotels clocked a 3.5% y-o-y decline. In addition, for CDL Hospitality Trusts, we believe that the asset enhancement initiatives at Orchard Hotel and Raffles Maldives Meradhoo will likely remain a drag for 2Q19.


Medium-term supply situation is favourable, but keeping an eye on Chinese demand

  • According to Horwath (as quoted by CDL Hospitality Trusts), hotel room supply is expected to grow at a very manageable 1.3% CAGR from end-2018 to end-2022. For 2019, supply growth is expected to be benign at 2.8% or 1,900 rooms, of which only 421 rooms are in the city centre. However, we continue to watch the strength of Chinese demand going forward.
  • Notably, Trump said Sunday that he will raise tariffs on US$200b of Chinese goods to 25% this Friday. Chinese visitors have been an important driver of the growth in visitor arrivals into Singapore; they accounted for 0.6 ppt out of the +1.0% growth in visitor arrivals in 1Q19, 1.1 ppt out of the 6.2% growth in 2018, and 2.2% ppt of the 6.2% growth in 2017. Unfortunately, the pace of growth in Chinese arrivals has itself been moderating – from +12.7% in 2017, to +5.9% in 2018, and then to +3.0% in 1Q19.
  • We will continue to monitor the progress of the trade talks as well as indicators of Chinese economic growth.


Maintain NEUTRAL on hospitality sector






Deborah Ong OCBC Investment Research | https://www.iocbc.com/ 2019-05-08
SGX Stock Analyst Report HOLD MAINTAIN HOLD 1.540 SAME 1.540
HOLD MAINTAIN HOLD 1.250 SAME 1.250
HOLD MAINTAIN HOLD 0.670 SAME 0.670



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