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

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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.

• We are optimistic of the positive outlook for tourism in Singapore. Key beneficiaries are Far East Hospitality Trust (pure play on Singapore hospitality) and CDL Hospitality Trusts (Singapore accounted for 62.5% of portfolio valuation).
• FAR EAST HOSPITALITY TRUST (SGX:Q5T) (BUY/Target: S$0.82) has a visible pipeline of nine hospitality properties from sponsor FEO, including the remaining 70% stake in three Sentosa hotels. See report: Far East Hospitality Trust - Pure Play On Rising Visitor Arrivals To Singapore.
• CDL HOSPITALITY TRUSTS (SGX:J85) (BUY/Target: S$2.06) will benefit from the ramp-up of the rejuvenated Orchard Hotel and re-opened Raffles Maldives Meradhoo. See report: CDL Hospitality Trusts - Rejuvenated Portfolio Poised To Benefit From Supply-led Recovery.
• We also like ASCOTT RESIDENCE TRUST (SGX:A68U) (BUY/Target: S$1.54) as the merger with Ascendas Hospitality Trust (SGX:Q1P) is DPU-accretive and set it on course for inclusion in the FTSE EPRA NAREIT Developed Index. See report: Ascott Residence Trust - Enlarged Scale Strengthens Capacity To Generate Growth.

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