CDL HOSPITALITY TRUSTS (SGX:J85)
FAR EAST HOSPITALITY TRUST (SGX:Q5T)
OUE HOSPITALITY TRUST (SGX:SK7)
Singapore Hospitality - Modest RevPAR Performance
- May19 RevPAR up 0.3% y-o-y to S$171 with Luxury hotels leading the way.
- Potential downside risk to DPU estimates with 5M19 RevPAR for Upscale and Mid-Tier hotels tracking below 2-3% improvement we had projected.
- But there is valuation support with majority of Singapore focused hospitality REITs trading below replacement cost and at average yield spreads.
- Maintain BUY on CDL HOSPITALITY TRUSTS (SGX:J85), FAR EAST HOSPITALITY TRUST (SGX:Q5T), and OUE HOSPITALITY TRUST (SGX:SK7).
What’s New - Flattish May performance after dip in April
- Based on the latest statistics from Singapore Tourism Board (STB), revenue per available room (RevPAR) for the month of May was up 0.3% y-o-y to S$171. This follows the 1.2% y-o-y decline in April. For the first 5 months of 2019 (5M19), RevPAR was flat y-o-y at S$185.
- The Luxury category continues to be strong with May RevPAR up a further 3.0% y-o-y after the 3.8% y-o-y rise in April. For 5M19, RevPAR for Luxury hotels was up 3.3% y-o-y to S$185.
- Offsetting the strength of Luxury hotels were hotels in the Upscale and Economy categories with RevPAR for May down 1.1% and 3.3% y-o-y respectively. This followed declines of 0.8% and 7.3% in April 2019. Meanwhile, performance for Mid-Tier hotels was mixed for the first two months of 2Q19. RevPAR for May was up 2.9% y-o-y after 1.6% y-o-y drop in April.
- For 5M19, RevPAR for the Upscale, Mid-Tier and Economy categories were down 2.4%, 0.2% and 0.7% y-o-y respectively.
- Steady RevPAR performance for the overall industry in May was underpinned by 0.9% and 0.3% y-o-y rise in visitor arrivals and total visitor days respectively. The softer performance outside the Luxury category may be a function of weaker visitor arrivals from Indonesia, India, Thailand and Vietnam which saw declines of 5.3%, 6.9%, 8.5% and 7.9% y-o-y respectively.
Our thoughts
- The 5M19 RevPAR performance especially for upscale and mid-tier categories indicate potential downside risk to our and consensus estimates for Singapore focused hospitality REITs - CDL Hospitality Trusts, Far East Hospitality Trust, and OUE Hospitality Trust.
- We have pencilled in 2-3% improvement in RevPAR for FY19. While 2019 is a non-conference year, we had assumed that the modest new supply in core CBD and Orchard areas and recent AEIs, would have led to a pickup in room rates and/or occupancy for hotels owned by the hospitality REITs. It appears visitors continue to prefer newer hotels opened in the last few years, making it difficult to yield up. In addition, modest arrivals from Indonesia (+1.8% y-o-y in 5M19) and potentially softer demand from corporate travellers due to the impact of the current trade tensions may have contributed to the weaker than expected performance.
- Nevertheless, we believe at current levels there is valuation support for the hospitality REITs. The implied price for CDL Hospitality Trusts and Far East Hospitality Trust’s Singapore portfolio stands at S$715k and S$680k per key respectively, compared to S$700k to S$2m per key for recent hotel transactions and S$1.0-1.5m breakeven cost for the Club Street hotel development site. In addition, hotel REITs such as a Far East Hospitality Trust and OUE Hospitality Trust are trading close to their average yield spreads versus -1.0 or -1.5 SD for a large number of the large cap S-REITs.
- Furthermore, stocks such as CDL Hospitality Trusts and Frasers Hospitality Trust (SGX:ACV) have NAV upside from potential asset disposals. In the event that that Novotel Liang Court is disposed as part of the redevelopment of the overall Liang Court mixed development site, CDL Hospitality Trusts could potentially crystalise 20% upside for the property.
- For now, we maintain our BUY calls on CDL Hospitality Trusts (Target Price S$1.85), Far East Hospitality Trust (Target Price S$0.70) and OUE Hospitality Trust (Target Price S$0.85).
- We also have BUY calls on Ascott Residence Trust (SGX:A68U) (Target Price S$1.45) and Ascendas Hospitality Trust (SGX:Q1P) (Target Price S$1.21) on the back of impact of “lower interest rates for longer” and expected benefits from the merger between the two trusts. For Frasers Hospitality Trust, we have a HOLD call with Target Price of S$0.77 owing to near term pressure on its DPU from supply pressures in Sydney.
Mervin SONG CFA
DBS Group Research
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Derek TAN
DBS Research
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Carmen TAY
DBS Research
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https://www.dbsvickers.com/
2019-07-09
SGX Stock
Analyst Report
1.850
SAME
1.850
0.700
SAME
0.700
0.850
SAME
0.850
