Singapore Hospitality & Retail REITs - DBS Research 2020-02-03: Reeling From The Travel Ban

Singapore Hospitality & Retail REITs - DBS Research | SGinvestors.io ASCOTT RESIDENCE TRUST (SGX:HMN) FAR EAST HOSPITALITY TRUST (SGX:Q5T) FRASERS CENTREPOINT TRUST (SGX:J69U) CDL HOSPITALITY TRUSTS (SGX:J85)

Singapore Hospitality & Retail REITs - Reeling From The Travel Ban

  • SG Authorities move to ban travellers from China with an aim to curb further spread of coronavirus.
  • Chinese travellers are one of the largest visitor source markets.
  • Knee-jerk reaction of hospitality S-REITs expected; chance to accumulate if it hits -1 SD P/NAV level.
  • Prefer Frasers Centrepoint Trust (SGX:J69U) amongst landlords as tourist malls likely to feel the heat.



Nipping the issue at the bud.

  • The Singapore Government has ramped up travel restrictions to prevent the spread of the Wuhan Coronavirus by banning visitors from mainland China (including foreigners) who have been there for the past 14 days from entering or transiting in Singapore. These measures kicked in on 11.59pm on Saturday (1 Feb).
  • This new measure comes on the back of the World Health Organisation’s (WHO) declaration that the Wuhan Coronavirus is a public health emergency as the outbreak appears to spread outside China. The concern is that the virus will spread to countries with weaker health systems.


Our thoughts and Impact on sectors:

  • Prevention is better than cure; the Singapore economy could be negatively impacted but the risk of repeat of a SARs-like community spread is minimised, in our view. This travel ban follows various resolute and rapid moves by the Chinese Government to lock down selected cities from 23 January 2020, banning of travel tour groups out of China, amongst others, to curb the spread overseas. This will, in our view, considerably reduce the number of visitors to regional economies, especially with ASEAN where Thailand, Japan and Singapore are top destinations for outbound travel from China.
  • This travel ban by the Singapore government is, in our view, a rapid response towards minimising the risk of a community spread within Singapore. This is especially when all the 18 confirmed cases (as of 1 February 2020, 12am) have recent travel history to Wuhan or Hubei. In fact, we believe that this travel ban will go towards preventing a repeat of a scenario of the former severe acute respiratory syndrome (SARs) back in 2003 where an infected person returned to Singapore and set off a series of transmissions which lasted five months (March to July 2003) before being eradicated. Given the swift measures from the authorities and more awareness from businesses and the community, we believe it will take a shorter period to stem the spread in this episode.
  • China is one of Singapore’s largest sources of tourists. While the length of this new travel ban is unknown at this moment, we believe that it would have an impact on Singapore’s economy, of which tourism is a key pillar. China is one of Singapore’s key visitor source markets, historically contributing c.20% of total visitors annually and also the largest spenders.
  • As of 1H19, according to statistics from the Singapore Tourism Board (STB), visitors from China contribute the lion’s share (c.20%) of the S$10.2bn tourism receipts. A majority of its (51%) when into shopping, followed by accommodation (17%), F&B (12%) and others (36%).


How does your average Chinese tourist look like?

  • We found that the average Chinese traveller to Singapore spends a larger proportion on consumables (shopping, F&B) compared to a “typical” visitor to Singapore (refer to table in attached PDF report). We believe that this is mainly due to the fact that c.70% of visitors from China are tourists (leisure travellers) rather than for business or MICE activities.


Impact on Retail: Divergent performance; suburban landlords to shine


“Netflix and order-in”; prefer Frasers Centrepoint Trust (FCT) for its resilience.

  • Consumer behaviors are already changing, especially in the near term. How many of us have decided to delay that weekend trip to the downtown Orchard Road for that weekend movie date or shopping therapy but rather stay home to watch Netflix and order in our meals? We believe that the impact to retail industry will be varied, with the Orchard Road malls negatively impacted given a larger proportion of tourist traffic coupled with residents potentially opting to take a trip to a nearby suburban mall instead. On that front, SPH REIT (SGX:SK6U) and Starhill Global REIT (SGX:P40U) may report weaker tenant sales turnover (GTO) in the subsequent quarters’ results given their exposure in Orchard Road.
  • CapitaLand (SGX:C31) may also be impacted, although minimal from its retail mall at Changi Airport, Jewel.
  • We believe that pure play suburban landlord, Frasers Centrepoint Trust (SGX:J69U) will benefit most given its malls (Causeway Point, Northpoint, Waterway Point) are dominant within the suburban retail scene.


Impact on hotels: No longer the run we are looking for


The risk of a snowball effect.

  • While we had previously pitched the hospitality sub-sector as a “dark horse” in 2020, the travel ban has made us rethink our view as we believe this to be the final straw that will break the camel’s back for the hotel industry. With the Chinese tourist numbers to be considerably lower in the coming months, we believe that the risk of a snowball effect to other travellers (for business or leisure to Singapore) who may delay their travel is high, compounded by WHO’s health emergency warning.
  • However, at this point, we do not anticipate any major cancellations or delays of the major MICE events like the Singapore Air Show (February 2020) but the Food & Hotel Asia (April 2020) and smaller conferences with a larger Chinese participation may carry a larger risk of cancellation.

Occupancy rates to dip 4% to 8%; RevPARs even more in the near term.

  • Assuming a 3 to 6 month travel ban for Chinese travellers while visitors from other markets remain constant, we estimate that total demand for accommodation may fall by c.-4% to -8% (purely from the impact of fewer Chinese travellers) of which we expect RevPAR after accounting for possible cuts to average daily rates (ADR) may range from - 8% to -15%. A return of confidence to travel may also take some time even after the breakout subsides, for leisure travellers.

A knee-jerk reaction is an opportunity to accumulate.


Impact on hospitality REITs are buffered by rental formula where 55-60% of revenues are fixed.

  • In recent meetings with various hospitality players, we understand that the net exposure to travellers from China are limited to c.4-10%, which implies that the direct impact from the travel ban may not be as bad as the sector average. That said, with the overall tourism market turning soft, revenues will likely be impacted in the near term as hoteliers fight to fill rooms as demand constricts.
  • As most hospitality REITs derive revenues from a formula that encapsulates a fixed rent + variable rent component, the impact of a significant fall in revenues is somewhat shielded from the fixed rents, which form 55-60% of revenues.
  • Refer to attached PDF report for complete analysis. 
  • Read also: Singapore REITs - When The World Sneezes…





Derek TAN DBS Group Research | Rachel TAN DBS Research | Singapore Research Team DBS Research | https://www.dbsvickers.com/ 2020-02-03
SGX Stock Analyst Report BUY MAINTAIN BUY 1.500 SAME 1.500
HOLD MAINTAIN HOLD 0.69 SAME 0.69
BUY MAINTAIN BUY 2.950 SAME 2.950
BUY MAINTAIN BUY 1.750 SAME 1.750



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