Singapore Hospitality REITs - CGS-CIMB Research 2020-06-05: Heading To A Good Start

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

Singapore Hospitality REITs - Heading To A Good Start




Singapore took the first step to open border with China and more to come; brighter prospects ahead

  • While we believe there was no improvement in RevPAR performance in May given that the country’s border remained closed and hotels had to continue to rely on SHN and Malaysian workers to fill up occupancy, we see brighter prospects for the industry going forward.
  • The government announced that it will resume essential travel with China as part of plans to slowly ease restrictions on flights and resume trade. Under the Singapore-China “fast lane” agreement which will start next Monday on 8 Jun, travellers on both sides will be exempted from rules that require everyone else to serve quarantine periods of up to 14 days. For a start, the new scheme will apply only to business and official travel, for flights between Singapore and six provinces in China – Shanghai, Tianjin, Chongqing, Guangdong, Jiangsu and Zhejiang.
  • While we think that the launch of the first “fast lane” with China would not move the needle of industry RevPAR, it is a big step towards the resumption of travelling activities. Going forward, we believe there will be more “fast lane” arrangements as Singapore is also in talks with New Zealand, South Korea, Australia and Malaysia on similar arrangements. According to the media, discussions with other non-Asian countries such as Europe that share major trading links with Singapore are also believed to be ongoing.


CDL Hospitality Trusts and Far East Hospitality Trust the main beneficiaries from “fast lane” arrangements

  • We believe the main beneficiaries of the current and ongoing “fast lane” arrangements would be CDL Hospitality Trusts and Far East Hospitality Trust given their high revenue exposure to Singapore. CDL Hospitality Trusts derived 49% of its FY19 revenue from Singapore while Far East Hospitality Trust has 100% exposure to Singapore and generated 81% of its FY19 revenue from hotels and serviced residences with the remaining 19% from commercial spaces.
  • CDL Hospitality Trusts and Far East Hospitality Trust generate ~50% and 30% of their Singapore revenue from corporates, respectively. Hence, the effective revenue exposure to corporate and Singapore for both REITs is about 25%. We believe both REITs have about 10% revenue exposure to Chinese tourists.
  • While we believe Ascott Residence Trust generates most of its revenue from corporates given its focus on serviced residences, its diversified revenue stream would slow down its recovery process, we believe. In FY19, Ascott Residence Trust generated ~9% of its revenue in Singapore and we estimate this to decline to ~8% in FY20 after the merger with Ascendas Hospitality Trust.


Apr 20 visitor arrivals down to 748 persons; average length of stay increased to 39 days

  • As expected, Singapore’s Apr 20 total tourist arrivals declined to just 748 persons from 1.6m in the previous year. Since Feb 20, tourist arrivals have been on a declining trend as Singapore gradually banned tourists from coming in the country and subsequently closed the border entirely for short-term visitors on 23 Mar 2020. Most of the arrivals in Apr 2020 were from Indonesia (28% of total arrivals), Thailand (20%), Malaysia (13%), India (12%) and the Philippines (4.5%) and average length of stay increased from 5.8 days in Mar 2020 to 39 days in Apr 2020. We believe these short-term visitors were in the country for essential services.


Apr RevPAR plunged 80% y-o-y from 62% y-o-y in Mar 20; economy and mid-tier benefited from SHN and Malaysian workers’ demand

  • In tandem with the decline in tourist arrivals, Singapore’s hotel RevPAR plunged 80% y-o-y in Apr. While there was some business from the placement of daily commuting Malaysian workers in Singapore as Malaysia closed its border from 19 Mar and stay-home-notice for citizens returning from overseas since 9 Apr 2020, occupancy fell 44% pts y-o-y to 41% while average room rate declined 59% y-o-y to S$89 in Apr 20.
  • Occupancy rates of mid-tier (-38% pts y-o-y to 49%) and economy (-33% pts to 49%) hotels saw milder declines than luxury (-70% pts y-o-y to 18%) and upscale hotels (-52% pts y-o-y to 32%), likely due to the demand from SHN and Malaysian workers. Room rate decline was about 40-50% across the board except for upscale hotels (-60% y-o-y) which could be due to the combination of higher room rate base and low room rates offered for SHN and Malaysian workers.
  • On an overall RevPAR performance basis, luxury hotels saw the steepest decline of 90% y-o-y. This was followed by upscale hotels at -85% y-o-y, mid-tier hotel at -71% y-o-y and economy hotels at -64% y-o-y.


Reiterate ADD on CDL Hospitality Trusts, Far East Hospitality Trust and Ascott Residence Trust






EING Kar Mei CFA CGS-CIMB Research | LOCK Mun Yee CGS-CIMB Research | https://www.cgs-cimb.com 2020-06-05
SGX Stock Analyst Report ADD MAINTAIN ADD 1.210 SAME 1.210
ADD MAINTAIN ADD 1.310 SAME 1.310
ADD MAINTAIN ADD 0.590 SAME 0.590



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