CDL HOSPITALITY TRUSTS (SGX:J85)
ASCOTT RESIDENCE TRUST (SGX:A68U)
FAR EAST HOSPITALITY TRUST (SGX:Q5T)
Singapore Hospitality REITs - RevPAR Recovery Gains Traction
- Stronger leisure travel market.
- 2020 looking to be a good year.
- ASCOTT RESIDENCE TRUST is our top hospitality REIT pick.
Singapore Hospitality REITs
- Out of the three hospitality REITs under our coverage, all of them reported an in-line set of 3Q19 results. DPU performances, however, were mixed, with negative y-o-y DPU growth for CDL HOSPITALITY TRUSTS (SGX:J85) (- 4.1%) and FAR EAST HOSPITALITY TRUST (SGX:Q5T) (-1.0%) while ASCOTT RESIDENCE TRUST (SGX:A68U) recorded +5% y-o-y DPU growth.
- 3Q19 SG RevPAR showed signs of improvement with better performances seen from SG Serviced Residences segment, driven by stronger leisure travel demand. Looking at the sector as a whole, we expect RevPAR pickup in 4Q19 and 2020.
- Our top pick is ASCOTT RESIDENCE TRUST [BUY; Fair Value: S$1.41]. We like ASCOTT RESIDENCE TRUST’s geographically diversified portfolio of high quality assets, and view its defensive positioning favourably, given the still uncertain macroeconomic environment.
DPU recap: Mixed bag for hospitality REITs under coverage
- 3QFY19 DPU y-o-y growth came in at +5% for ASCOTT RESIDENCE TRUST (excluding one-off divestment gains, ASCOTT RESIDENCE TRUST’s DPU would have grown 0.6% y-o-y), -4.1% for CDL HOSPITALITY TRUSTS, and -1.0% for FAR EAST HOSPITALITY TRUST.
- ASCOTT RESIDENCE TRUST’s gross profit increased by 1% y-o-y to S$65.0m, mainly due to new accounting standard FRS 116 effective from 1 Jan 2019.
- CDL HOSPITALITY TRUSTS recorded a 1.5% y-o-y decline in NPI, due largely to lower contribution from overseas markets (fell between 5.9% to 40.1% y-o-y, led by New Zealand, Germany and Japan).
- On the other hand, FAR EAST HOSPITALITY TRUST’s 3Q19 NPI rose 1.3% y-o-y, driven by higher contribution from all 3 components of FAR EAST HOSPITALITY TRUST’s portfolio.
Better performances supported by stronger leisure travel demand
- As expected, 3Q19 SG hotels RevPAR figures saw an improvement from 1H 2019, supported by stronger leisure travel market.
- CDL HOSPITALITY TRUSTS’s 3Q and 9M19 RevPAR growth came in at 4.9% and 0.4% y-o-y, on the back of higher occupancy and room rate. For FAR EAST HOSPITALITY TRUST, 3Q RevPAR growth was flat while 9M19 RevPAR fell 1.5% y-o-y, dragged by weaker corporate travel demand. Separately, SG Serviced Residences (SR) continued to perform in 3Q. FAR EAST HOSPITALITY TRUST’s 3Q and 9M19 SR RevPAU grew by 5.7% and 3.0% y-o-y respectively, largely due to a growth in shorter-stay bookings at higher room rates while ASCOTT RESIDENCE TRUST posted a 2%/8% y-o-y growth in 3Q/9M19 RevPAU.
Unlocking portfolio values
- Recall that ASCOTT RESIDENCE TRUST will join the consortium led by CITY DEVELOPMENTS (SGX:C09) and CAPITALAND (SGX:C31) to redevelop the Liang Court Site with a partial sale of 15,170 square metres of Somerset Liang Court Singapore’s GFA to CITY DEVELOPMENTS for S$163.3m. ASCOTT RESIDENCE TRUST will redevelop the retained GFA of 13,034 square metres with a fresh 99 years leasehold into a new Somerset serviced residence with a hotel license using the net proceeds from the partial sale of land.
- Meanwhile, CDL HOSPITALITY TRUSTS announced the proposed redevelopment transaction which involves the
- divestment of Novotel Singapore Clarke Quay (NCQ) at Liang Court Site;
- forward purchase of a brand new, lifestyle hotel at redeveloped Liang Court Site from a subsidiary of CITY DEVELOPMENTS; and also the proposed acquisition of W Singapore – Sentosa Cove (W Hotel).
- We see these transactions as largely positive for ASCOTT RESIDENCE TRUST and CDL HOSPITALITY TRUSTS’s long-term growth which should support DPU growth visibility.
Expecting a brighter 2020
- According to data from Singapore Tourism Board (STB), YTD Oct 2019 international visitor arrivals increased by 2.3% y-o-y to 15.9m while RevPAR was up 1.2% y-o-y. We expect to see RevPAR pickup in 4Q19 and 2020. Hotel room supply in Singapore is benign at a lower CAGR of 1.3% for the next 4 years.
- While demand from corporate travel is likely to remain soft amidst economic uncertainties, we expect demand from leisure travel to remain healthy, driven by biennial and a number of inaugural events in Singapore in 2020.
Ascott Residence Trust our top pick
- Our top hospitality REIT pick is ASCOTT RESIDENCE TRUST [BUY; Fair Value: S$1.41]. We like ASCOTT RESIDENCE TRUST’s geographically diversified portfolio of high quality assets, and view its defensive positioning favourably, given the still uncertain macroeconomic environment. With Singapore and Japan being its key markets, we believe ASCOTT RESIDENCE TRUST is suitably poised to ride the hospitality up-cycle. Moreover, post the merger with ASCENDAS HOSPITALITY TRUST (SGX:Q1P), ASCOTT RESIDENCE TRUST’s total asset will increase to ~S$7.6bn, and debt headroom will rise to ~S$1bn based on the current regulatory leverage limit of 45%. This offers ASCOTT RESIDENCE TRUST greater flexibility to pursue DPU accretive acquisitions to mitigate the income shortfall due to the Liang Court Site redevelopment period.
- See Ascott REIT Share Price; Ascott REIT Target Price; Ascott REIT Analyst Reports; Ascott REIT Dividend History; Ascott REIT Announcements; Ascott REIT Latest News.
- We also have BUY on CDL HOSPITALITY TRUSTS [BUY; Fair Value: S$1.69], which could potentially benefit from increasing tourists arrivals and improved contributions from Orchard Hotel post refurbishment. Note that Orchard Hotel will be one of only four hotels in Singapore with a ballroom that can accommodate 1k or more guests.
- See CDL Hospitality Trusts Share Price; CDL Hospitality Trusts Target Price; CDL Hospitality Trusts Analyst Reports; CDL Hospitality Trusts Dividend History; CDL Hospitality Trusts Announcements; CDL Hospitality Trusts Latest News.
- We do recognise FAR EAST HOSPITALITY TRUST [HOLD; Fair Value: S$0.68] as another beneficiary of the SG hospitality upturn and will continue to monitor the stock for a more compelling entry.
- See Far East Hospitality Trust Share Price; Far East Hospitality Trust Target Price; Far East Hospitality Trust Analyst Reports; Far East Hospitality Trust Dividend History; Far East Hospitality Trust Announcements; Far East Hospitality Trust Latest News.
Chu Peng
OCBC Investment Research
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https://www.iocbc.com/
2019-12-26
SGX Stock
Analyst Report
1.690
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