Hospitality REITs - CGS-CIMB Research 2019-10-30: A Good 3Q

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ASCOTT RESIDENCE TRUST (SGX:A68U) CDL HOSPITALITY TRUSTS (SGX:J85) FAR EAST HOSPITALITY TRUST (SGX:Q5T)

Hospitality REITs - A Good 3Q

• CDL Hospitality Trusts, Far East Hospitality Trust and Ascott Residence Trust’s 9MFY19 DPU came in within expectations.
• Singapore hotels did well in 3Q but overseas markets were weaker.
• Expect stronger RevPAR in 2020F due to a higher number of events.
• Maintain OVERWEIGHT on the overall REIT sector.

Hospitality REITs' 9M19 results in line

• CDL HOSPITALITY TRUSTS (SGX:J85), FAR EAST HOSPITALITY TRUST (SGX:Q5T) and ASCOTT RESIDENCE TRUST (SGX:A68U)’s 9M19 DPU came in line, respectively at 70% (CDL Hospitality Trusts's 9M usually accounts for 70% of full-year DPU), 73.5% and 75.5% of our full-year forecasts. See
  • Ascott REIT Announcements;
  • CDL Hospitality Trust Announcements;
  • Far East Hospitality Trust Announcements.
• CDL Hospitality Trusts (9M19 DPU: -3.7% y-o-y) was impacted by weaker 1H Singapore performance and overseas business. Far East Hospitality Trust (-4.7% y-o-y) was impacted by higher finance cost to fund the acquisition of Oasia Downtown Hotel last year as well as its enlarged share base due to the implementation of distribution reinvestment plan in the past three quarters. See CDL Hospitality Trust Dividend History; Far East Hospitality Trust Dividend History; Ascott REIT Dividend History.

REITs had a good 3Q on strong demand

• As expected, the REITs benefited from strong tourist arrivals (driven by seasonal factors, potential diversion from HK, and stronger attendance for the F1 race) in 3Q19. In tandem with the stronger tourist arrivals in Jul and Aug (+3.5% y-o-y on average vs. ~+1% y-o-y on average in Feb-Jun), CDL Hospitality Trusts had a strong 3Q revenue per available room (RevPAR) of +4.9% y-o-y (3QFY18: -0.6% y-o-y).
• Far East Hospitality Trust’s 3Q RevPAR was flat y-o-y, partly due to the higher base of +6.3% RevPAR last year; management indicated that better revenue management resulted in better RevPAR towards end-3Q.
• While Far East Hospitality Trust’s occupancy rose 1.6% pts to 92.3%, average room rate declined 2% to S$164. CDL Hospitality Trusts, on the other hand, reported stronger occupancy (+0.6% pt to 91.4%) and room rate (+4.3% to S$190) in 3Q.

Serviced residence performed better in 3Q

• Singapore serviced residences delivered good 3Q19 results. Far East Hospitality Trust reported revenue per available unit (RevPAU) of +5.7% on better occupancy and average daily rate which were in turn driven by the leisure market and shorter-stay bookings.
• Ascott Residence Trust’s Singapore RevPAU rose 2% y-o-y, driven by firm corporate demand; we attribute this to its strong brand name.

Overseas markets affected by weaker currencies and competition

• The REITs generally did not do so well in the overseas markets, affected by weaker currencies and competition. Based on 3Q19 results, more promising markets in the near term include Japan due to the upcoming Tokyo 2020 Olympics and Paralympics, and Germany with its robust line-up of events in 2H2020. The REITs continue to look out for acquisitions to drive growth with Singapore as the preferred market.

Looking forward to an eventful year in 2020

• We do not expect a strong 4Q19F given the high base y-o-y (events related to ASEAN Chairmanship which lasted till Nov, and Bloomberg Forum in Nov). Any strong tourist diversions from HK will be a plus. 2020F will be a stronger year due to the presence of biennial and major events such as the annual International Trademark Association meeting, Industrial Transformation Asiapac, and Lions Clubs Convention.
• We feel that the REITs will have more confidence to raise room rates going forward. They are targeting for positive RevPAR in 2H and low single-digit full-year RevPAR in 2020.

Highlighted Companies

ASCOTT RESIDENCE TRUST (SGX:A68U)

• HOLD, Target Price S$1.34.
• We maintain HOLD on Ascott Residence Trust at a higher target price as we roll over our valuation to FY20F.
• While the stock remains a HOLD call, we see upside potential post-merger in Dec 2019. The enlarged entity would position the REIT for stronger growth. It also has the potential to be included into the FTSE EPRA NAREIT index. See recent SGX Market Update: Recent SGX Additions to FTSE EPRA Nareit Global Developed Index.
• See Ascott REIT Share Price; Ascott REIT Target Price.

CDL HOSPITALITY TRUSTS (SGX:J85)

• ADD, Target Price S$1.83.
• We expect stronger DPU growth in 2020F, driven by stronger tourist arrivals, full-year post-renovation contribution from Orchard Hotel, and gradual ramp up of Raffles Maldives.
• As we roll over our valuation to FY20F, our target price declines as we reduce its terminal growth rate due to the weaker economic outlook.
• See CDL Hospitality Trust Share Price; CDL Hospitality Trust Target Price.
• See SGX Market Update: SIA, ComfortDelGro, CDL Hospitality Joined FTSE Value-Stocks ASEAN Index.

FAR EAST HOSPITALITY TRUST (SGX:Q5T)

• HOLD, Target Price S$0.70.
• Far East Hospitality Trust should deliver stronger RevPAR in FY20F, driven by potentially stronger tourist arrivals. Strong DPU growth would come from the distribution of dividend from its JV hotels in Sentosa. Our Target Price rises as we roll over our valuation to FY20F.
• See Far East Hospitality Trust Share Price; Far East Hospitality Trust Target Price.

EING Kar Mei CFA CGS-CIMB Research | LOCK Mun Yee CGS-CIMB Research | https://www.cgs-cimb.com 2019-10-30

SGX Stock Analyst Report HOLD MAINTAIN HOLD 1.34 UP 1.310

ADD MAINTAIN ADD 1.83 DOWN 1.920

HOLD MAINTAIN HOLD 0.70 UP 0.680