REITs - CGS-CIMB Research 2020-02-03: Coronavirus - SG Bans Chinese Arrivals

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

REITs - Coronavirus - SG Bans Chinese Arrivals

  • Industry RevPAR could fall into negative territory in 2020 following the ban on Chinese arrivals in Singapore and the deteriorating coronavirus situation.
  • REITs see immaterial impact so far. Any weakness could be offset by distributions from divestment gains.
  • Expect share price weakness. Hospitality is the least preferred subsector.



Singapore bans Chinese visitors

  • Singapore has announced that it will close its borders to all new visitors from mainland China from 3 Feb 2020, including to foreigners who have been there within the past 14 days. The Chinese government itself has also banned all tour groups and hotel-and-flight packages.
  • As of 1 Feb 2020, there have been 12,027 confirmed coronavirus cases, of which 11,860 came from mainland China, 118 from Asia and the rest from Europe, US and Australasia. As at 1 Feb Jan 2020, there were a total of 259 deaths just from China.


Expect tourist arrivals to be affected

  • We believe the ban on visitors from mainland China is likely to have a material impact on Singapore tourist arrivals given that China is the largest source of arrivals for Singapore, accounting for 19.3% of total arrivals in 11M2019. The Chinese tourists are also the largest spenders, at 19.6% of total tourism receipts in 1H2019. We believe the global outbreak of coronavirus will also affect travel demand and impact overall tourist arrivals in Singapore.
  • During the SARS outbreak in 2003, Singapore suffered 19% and 17% y-o-y declines in total arrivals and RevPAR, respectively.


Impact on REITs immaterial for now

  • The impact of the coronavirus outbreak on hospitality REITs has been immaterial so far, although there have been some booking cancellations. CDL Hospitality Trusts (SGX:J85)’s RevPAR remained strong at 4% for the first 28 days of Jan, Ascott Residence Trust (SGX:HMN) saw Chinese extending their stays in Singapore while Far East Hospitality Trust (SGX:Q5T) continued to see bookings from other markets, ex China. We believe greater material impact could only be seen in 2Q.
  • In 2003, based on our estimates, Singapore hotel occupancy declined by 10% pts y-o-y to 65%. Taking our cue from this (assuming 65% occupancy for Singapore hotels), CDL Hospitality Trusts’s and Far East Hospitality Trust’s FY20 DPU forecasts will decline by 7.5% and 21%, respectively. Assuming an additional 10%-pt occupancy decline in overseas markets for CDL Hospitality Trusts’s and Far East Hospitality Trust’s serviced residences, our FY20 DPU forecasts will fall 11.7% and 23%, respectively.
  • Cutting Ascott Residence Trust’s management contract’s RevPAU by 10% pts will reduce our FY20 DPU forecast by 6.5%. If the outbreak persists, 2020 industry RevPAR could fall into negative territory.


Expect share price weakness for hospitality REITs

  • However, we note that REITs could use divestment gains to offset any weakness from slower demand. Despite the potential downside in our FY20 DPU forecasts, our DDM-based target prices remained unchanged as we project a rebound in 2021.
  • In 2004, after the SARS outbreak in 2003, tourist arrivals rebounded by 36% y-o-y while RevPAR jumped 26%. We nonetheless expect share price weakness for the hospitality REITs. Hospitality remains as our least preferred subsector.





EING Kar Mei CFA CGS-CIMB Research | LOCK Mun Yee CGS-CIMB Research | https://www.cgs-cimb.com 2020-02-03
SGX Stock Analyst Report HOLD MAINTAIN HOLD 1.340 SAME 1.340
HOLD MAINTAIN HOLD 0.700 SAME 0.700
ADD MAINTAIN ADD 1.830 SAME 1.830



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