Hospitality REITs – Singapore - UOB Kay Hian 2019-07-19: Singapore Becoming More Hospitable

Hospitality REITs – Singapore - UOB Kay Hian Research | SGinvestors.io FAR EAST HOSPITALITY TRUST (SGX:Q5T) CDL HOSPITALITY TRUSTS (SGX:J85) ASCOTT RESIDENCE TRUST (SGX:A68U)

Hospitality REITs – Singapore - Singapore Becoming More Hospitable

  • Hospitality REITs will benefit from a series of government initiatives to develop new tourism attractions, including those at Sentosa, Pulau Brani and the GSW, and limited supply of hotel rooms in the next three years.
  • With visitor arrivals expanding at a 10-year CAGR of 6.2%, consistently surpassing population growth of 1.5%, the importance of the tourism sector can only increase over time.
  • BUY FAR EAST HOSPITALITY TRUST (SGX:Q5T), CDL HOSPITALITY TRUSTS (SGX:J85) and ASCOTT RESIDENCE TRUST (SGX:A68U). Maintain OVERWEIGHT.



WHAT’S NEW


Constant renewal to reinvent Singapore as a tourist destination and global city.

  • The government has embarked on a series of initiatives to enhance Singapore’s competitiveness and attractiveness as a tourist destination. They include:
    1. Jewel Changi Airport (opened in Apr 19),
    2. expansions at Marina Bay Sands and Resort World Sentosa,
    3. Mandai Nature Precinct, and
    4. an integrated tourism development at Jurong Lake District.
  • Plans are also underway to vastly expand Changi Airport to support future growth in visitor arrivals.

New tourism attractions at Greater Southern Waterfront (GSW).

  • The government will draw up comprehensive plans to develop new tourism attractions at Sentosa, Pulau Brani and the GSW. The new entertainment and recreational district will be seamlessly connected to the Southern Ridges, running from Kent Ridge Park to Mount Faber Park.
  • Masterplan 2030 will transform Sentosa from a “day” destination to a “day-to-night” destination with more after-dark activities. Sentosa is running out of space due to ongoing expansions. Thus, development of new tourism attractions is likely to spill over to Pulau Brani. The government could consider building a family-oriented resort on Pulau Brani.

Demand outpaces supply of hotel rooms.

  • A total of 3,415 hotel rooms will be completed from 2019 to 2022, representing muted growth in supply at a 4-year CAGR of 1.3%. Growth in visitor arrivals is expected to be significantly higher than the increase in supply of hotel rooms, resulting in an uplift to RevPAR over the next three years.

Airbnb is illegal in Singapore.

  • The URA announced in May 19 that the use of private residential properties for short-term accommodation (STA) of less than three consecutive months will be illegal and offenders may be fined up to S$200,000 and/or imprisoned for up to 12 months. The pronouncement is positive for the hospitality industry as it removes competition from alternative forms of lodging when tourists visit Singapore.


ACTION


Growth in visitor arrivals consistently surpassed population growth.

  • For the past 10 years, visitor arrivals expanded at a CAGR of 6.2%, vs population growth of 1.5%. It is inevitable that growth in tourism will progressively have a greater impact on Singapore’s domestic economy, which is evident in tourists’ increasing contribution to retail sales.

Singapore becoming more hospitable.



SECTOR CATALYSTS

  • Interest rates are expected to drift sideways in the foreseeable future.
  • Series of government initiatives to develop new tourism attractions.
  • Limited supply of new hotel rooms over the next three years.


ASSUMPTION CHANGES

  • We have kept our earnings forecast unchanged.


RISKS

  • Uncertainties from US-China trade conflict.





Jonathan KOH CFA UOB Kay Hian Research | Peihao LOKE UOB Kay Hian | https://research.uobkayhian.com/ 2019-07-19
SGX Stock Analyst Report BUY MAINTAIN BUY 0.820 SAME 0.820
BUY MAINTAIN BUY 2.060 SAME 2.060
BUY MAINTAIN BUY 1.540 SAME 1.540



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