Hospitality REITs - CGS-CIMB Research 2019-09-18: 3Q Should Be A Good Quarter

REITs - CGS-CIMB Research | SGinvestors.io CDL HOSPITALITY TRUSTS (SGX:J85) FAR EAST HOSPITALITY TRUST (SGX:Q5T)

Hospitality REITs - 3Q Should Be A Good Quarter

  • Jul arrivals rose 4% y-o-y, the fastest pace since Nov 2018, while RevPAR delivered positive growth.
  • We expect a good 3Q19F, driven by stronger arrivals and positive spillover effect from HK unrest. Haze should not deter travelling at this stage.
  • We are sector Overweight with hospitality as our second preferred subsector.
  • Upside/downside risks include stronger/weaker-than-expected tourist arrivals



Strong tourist arrivals and RevPAR performance in Jul 2019

  • Singapore tourist arrivals grew 4% y-o-y in Jul, the fastest pace since Nov 2018, to 1.80m, surpassing the previous year’s peak of 1.73m (source: Singapore Tourism Board, STB). Tourist arrivals from Southeast Asia rose 5.8% y-o-y, its first strong growth in 2019.
  • Jul is usually a peak month for Singapore, and the strong growth coincided with the first decline in HK’s tourist arrivals (-4.8% y-o-y) since Jan 2018. For the first time in 2019, all hotel segments posted stronger y-o-y RevPAR. Luxury segment remains the most resilient while upscale segment finally turned around. Overall Jul RevPAR grew 1.7% y-o-y (flat YTD).


No major events moved from HK to Singapore yet.

  • While the hoteliers generally think that Singapore has benefited from tourists diverting their holiday destination from HK to a certain extent, they have not seen large events shifting from HK to Singapore.
  • Based on our research, many events were cancelled or rescheduled in HK but stopped short of being moved elsewhere. We are of the view that larger events require longer lead time for planning. Hence, we would only see the impact next year, if any. Having said that, we still see positive RevPAR growth in Aug 2019.
  • Seasonally, Jul and Aug are the peak months for tourist arrivals. This, coupled with the positive spillover effect from the unrest in HK, should support tourist arrival growth in Aug. We understand that Sep started off slowly but picked up recently.


Expecting a decent 3Q19F industry RevPAR performance; minimal impact from haze for now.

  • Although there are no large events, we believe tourist arrivals and RevPAR should continue to rise in Aug 2019. Seasonally, Jul and Aug are the peak months for tourist arrivals. Coupled with the positive spillover effect from the unrest in HK, this should support tourist arrival growth in Aug.
  • We understand that Sep started off slowly but picked up recently although it may not be as strong as last year as Chinese arrivals were boosted by the earlier mid-autumn festival which fell on 24 Sep 2018. Based on our research, despite the worsening haze and the high room rates ( > S$500/night on average), 17 of the 30 hotels located nearest to the F1 track are fully booked or have less than 10 rooms available during the F1 race weekend on 20-22 Sep.
  • Historical data shows that the haze does not have a material impact on tourist arrivals in Singapore. During the one week pf haze in Jun 2013 when 3-hourly Pollutant Standards Index (PSI) hit 400, tourist arrivals continued to increase 11% y-o-y. Similarly, during the 1.5 month-long haze in Oct 2015 when the 3- hourly PSI hit 334, tourist arrivals increased > 3% y-o-y.
  • However, while travel plans are usually made in advance, severe and prolonged haze is bound to affect tourist arrivals, in our view. Taking our cue from Malaysia, Malaysia’s tourist arrivals declined 6% in Jun 2013 when API in some parts of the country hit 750. While Singapore and Malaysia use different air quality indexes, both countries classify a reading above 300 as hazardous.


Expect hospitality REIT to perform in tandem with the stronger industry RevPAR

  • We expect hospitality REITs to benefit from the stronger RevPAR in Jul and Aug. CDL HOSPITALITY TRUSTS (SGX:J85) should deliver a stronger 3QFY19F RevPAR performance y-o-y. In addition to the potential stronger tourist arrivals in 3QFY19, the completion of Orchard Hotel’s renovation which contributed 21.3% of FY18 NPI would also boost growth. Recall that in 2QFY19, excluding the effect of Orchard Hotel renovation, RevPAR would have been 1.3% vs. -1.7% in 2QFY18.
  • As for FAR EAST HOSPITALITY TRUST (SGX:Q5T), while we expect the REIT to deliver decent RevPAR in dollar terms in 3Q, we expect y-o-y growth to be relatively flattish given the strong performance last year due to the addition of Oasia Hotel Downtown in Apr 2018, and completion of Orchard Rendezvous Hotel’s renovation.


Maintain Overweight on overall REIT with hospitality as our second preferred subsector

  • We continue to expect the industry to deliver flat to 1% y-o-y RevPAR growth in 2019F. 2020F should be a better year given the return of biennial events while supply stays low. In addition, events could be moved from HK to Singapore.
  • We maintain hospitality as our second most preferred subsector and CDL Hospitality Trusts as our preferred stock.





EING Kar Mei CFA CGS-CIMB Research | LOCK Mun Yee CGS-CIMB Research | https://www.cgs-cimb.com 2019-09-18
SGX Stock Analyst Report ADD MAINTAIN ADD 1.920 SAME 1.920
HOLD MAINTAIN HOLD 0.680 SAME 0.680



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