Hospitality REITs - CGS-CIMB Research 2020-02-12: Tourist Arrivals To Drop In 2020F

Hospitality REITs - CGS-CIMB Research | SGinvestors.io FAR EAST HOSPITALITY TRUST (SGX:Q5T) CDL HOSPITALITY TRUSTS (SGX:J85) OUE COMMERCIAL REIT (SGX:TS0U)

Hospitality REITs - Tourist Arrivals To Drop In 2020F




STB projects 25-30% decline in visitor arrivals in 2020F

  • The Singapore Tourism Board (STB) announced that it is projecting a 25% to 30% drop in visitor arrivals this year due to the novel 2019-nCoV coronavirus outbreak. See STB announcement. It also sees an average decline of 18,000 to 20,000 tourists daily.
  • Prior to this, on 2 Feb 2020, Singapore has banned the arrival of Chinese nationals as well as tourists who have been in China in the preceding 14 days. On Friday, it moved its Disease Outbreak Response System Condition (DORSCON) level to orange as the coronavirus spreads further within the country with new cases of unknown origin.


Forecasting substantial decline in RevPAR in 2020F

  • The projection of a 25-30% drop in visitor arrivals was steeper than the 19% drop in 2003 during the Severe Acute Respiratory Syndrome (SARS) outbreak. While this looks severe, we believe it is not unlikely given that Chinese arrivals now account for ~20% of total visitor arrivals in Singapore vs. 9% back in 2003.
  • Based on our model, a y-o-y drop of 25% in tourist arrivals would have factored in half a year of zero Chinese arrivals and an average of 15% full-year decline for the rest of the arrivals. A 25% decline in visitor arrivals would reset Singapore's tourist arrivals back to 2012's level when Singapore has only ~51k hotel rooms vs. current room stock of ~69k rooms. Hence, we foresee a sharp drop in occupancy and probably room rates to attract demand.
  • We project 2020F industry revenue per average room (RevPAR) to decline 15-20% before rebounding strongly in 2021F. During the SARS outbreak, RevPAR declined 17% y-o-y.


Cutting hospitality REITs’ RevPAR assumptions for 2020F



Maintain hospitality as our least preferred subsector

  • During the SARS period, the government provided assistance to hoteliers with a SARS relief package which included
    1. property tax rebates,
    2. 50% reduction in foreign worker levy,
    3. 100% rebate of TV licence fee, and
    4. cess rebate and waiver of cess security deposit.
  • If such a package is provided this time round, it will help to relief some pressure on the hoteliers. We maintain hospitality as our least preferred subsector.


Downgrade CDL Hospitality Trusts (SGX:J85) from Add to HOLD, with a lower Target Price of S$1.50

  • We had expected CDL Hospitality Trusts’s FY20F DPU to be boosted by
    1. the full-year contribution from the completion of Orchard Hotel to drive its Singapore RevPAR, and
    2. narrower losses from the Raffles Maldives Resort as it progressively takes in guests to lift burden on its income.
  • With the coronavirus outbreak, the weaker tourist arrivals will impact the performance of CDL Hospitality Trusts's hotels, particularly in Singapore. Its Maldives Resorts and New Zealand hotel will also be more severely impacted than its assets in other overseas markets due to the large proportion of Chinese arrivals in the two countries. The REIT has ~33% of its income derived from fixed income.
  • Following STB’s revision in tourist arrival projections, we cut our FY20-22 DPU forecasts by 9-10% to factor in a ~15% y-o-y decline in its Singapore FY20F RevPAR (-7% pts in AOR and 8% y-o-y decline in ARR). We reduce our FY20-22 forecasts on its overseas occupancy and average room rates by 2-5% pts, depending on the market. We also reduced its Singapore hotels’ gross operating profit margin by 2% pts. Accordingly, our target price is reduced from S$1.83 to S$1.50, which implies ~1x P/BV.
  • As we see limited catalysts for now, we downgrade the stock from Add to HOLD.
  • 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;
  • Upside/downside risks include stronger/lower-than-expected impact from the coronavirus outbreak.


Reiterate HOLD on Far East Hospitality Trust (SGX:Q5T), with a lower Target Price of S$0.64



Reiterate HOLD on OUE Commercial REIT (SGX:TS0U), with a lower Target Price of S$0.53

  • For OUE Commercial REIT, post its merger with OUEHT, hospitality contributions accounted for c.30.7%/32.7% of its enlarged 4Q19 revenue/net property income base. It now owns both the Mandarin Singapore and Crowne Plaza Changi Airport (total of 1,640 rooms).
  • Following STB's revision in tourist arrival projections, we lower our FY20-22F RevPAR assumptions for OUE Commercial REIT's hospitality division. Our revised assumption bakes in a 15% y-o-y decline in average portfolio RevPAR in FY20F (- 8% pts ARR, -7% pts AOR) as well as a 2%-pt reduction in GOP margin. This revision mirrors the adverse impact on the industry during the 2003 SARS.
  • We previously projected 3.8% y-o-y growth in portfolio RevPAR for FY20F. However, we foresee a strong RevPAR rebound of 15% y-o-y in FY21F given the low base. Accordingly, our FY20-22F revenue forecasts are cut by 2-4.4% while our DPU forecasts decline by 3.6-7.8%. In tandem with our earnings revisions, our DDM- based Target Price is lowered to S$0.53.
  • More importantly, we note that despite the downward revisions, OUE Commercial REIT's hotel contributions remain way above its total minimum rental level of S$67.5m p.a. Recurring revenue from hotels, offices and retail assets provide the REIT with a large steady income base -- we estimate this accounts for 70-72% of our FY20-22F net property income forecasts.
  • Our HOLD rating is maintained.
  • See OUE Commercial REIT Share Price; OUE Commercial REIT Target Price; OUE Commercial REIT Analyst Reports; OUE Commercial REIT Dividend History; OUE Commercial REIT Announcements; OUE Commercial REIT Latest News.
  • Better-than-projected hotel sector performance is a key upside risk to our call while downside risks include a prolonged downturn of the hospitality sector.





EING Kar Mei CFA CGS-CIMB Research | LOCK Mun Yee CGS-CIMB Research | https://www.cgs-cimb.com 2020-02-12
SGX Stock Analyst Report HOLD MAINTAIN HOLD 0.64 DOWN 0.700
HOLD DOWNGRADE ADD 1.50 DOWN 1.830
HOLD MAINTAIN HOLD 0.53 DOWN 0.560



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