Singapore Hospitality REITs - UOB Kay Hian 2020-03-20: Bottom Fishing Amid Capitulation

Singapore Hospitality REITs - UOB Kay Hian | SGinvestors.io ASCOTT RESIDENCE TRUST (SGX:HMN) CDL HOSPITALITY TRUSTS (SGX:J85) FAR EAST HOSPITALITY TRUST (SGX:Q5T)

Singapore Hospitality REITs - Bottom Fishing Amid Capitulation




WHAT’S NEW


Decisive actions to suppress COVID-19 outbreak.

  • The Singapore government has banned all inbound flights from Wuhan, China since 23 Jan 20. From 1 Feb 20, all visitors with recent travel history to mainland China within the last 14 days will not be allowed entry or transit through Singapore. Similar bans were also imposed on visitors with travel history to Iran and South Korea from 3 Mar 20 and visitors with travel history to Italy, France, Spain and Germany from 15 Mar 20.
  • About 70% of recent new COVID-19 cases were imported cases, mostly Singapore residents returning to Singapore after travelling abroad. To prevent more imported cases, the government will impose a 14-day Stay-Home Notice for all Singaporeans and short-term visitors entering Singapore from 21 Mar 20.

Gloomy forecast from STB.

  • As of 11 Feb 20, Singapore Tourism Board (STB) had already projected a 25-30% drop in visitor arrivals in 2020 (steeper than the 19% contraction caused by SARS in 2003). They estimated that Singapore would lose an average of 18,000-20,000 international visitors each day due to COVID-19 outbreak. The situation has worsened since the forecast was made.

Hotels bearing brunt of precipitous fall in visitor arrivals.

  • Our channel checks indicate that average occupancy for hotels in Singapore hovered at 28-30% in Mar 20. Fortunately, competition was rational as hoteliers did not undercut one another in terms of pricing. Average daily rate (ADR) dropped by a marginal 2% y-o-y in March. This is a deterioration compared to Feb 20 when average occupancy was 48-50% and ADR was flat y-o-y. We estimate that RevPAR has contracted industry-wide by 68% y-o-y in Mar 20.

Serviced residences provide solace.

  • The average occupancy for serviced residences in Singapore is 75% in Mar 20. ADR has dropped slightly by 3% y-o-y. We estimate that RevPAR has contracted industry-wide by 14% y-o-y in Mar 20.


ACTION


Hitting rock bottom.


Supported by strong sponsors.

  • The sponsors of Ascott Residence Trust, CDL Hospitality Trusts and Far East Hospitality Trust, which are CapitaLand (SGX:C31), Millennium & Copthorne Hotels and Far East Organisation, are established real estate companies with good track record and strong balance sheet.
  • We have raised our cost of equity by 1.0ppt to 7.5% and toned down terminal growth from 1.5% to 0.5% in our Dividend Discount Model to value Hospitality REITs. This is done to factor in the harsh and uncertain operating environment facing hospitality REITs.


Ascott Residence Trust (SGX:HMN)



CDL Hospitality Trusts (SGX:J85)



Far East Hospitality Trust (SGX:Q5T)



SECTOR CATALYSTS

  • Environment of persistently low interest rates, which will keep interest fixated on yield plays, such as S-REITs.
  • Limited supply of new hotel rooms over the next three years.


ASSUMPTION CHANGES

  • As mentioned above.


RISKS

  • COVID-19 outbreak results in many countries imposing lockdown, which restrains ic activities.


See also






Jonathan Koh CFA UOB Kay Hian Research | Loke Peihao UOB Kay Hian | https://research.uobkayhian.com/ 2020-03-20
SGX Stock Analyst Report BUY MAINTAIN BUY 1.24 DOWN 1.660
BUY MAINTAIN BUY 1.34 DOWN 2.050
BUY UPGRADE HOLD 0.50 DOWN 0.650



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