CDL HOSPITALITY TRUSTS (SGX:J85)
FAR EAST HOSPITALITY TRUST (SGX:Q5T)
ASCOTT RESIDENCE TRUST (SGX:HMN)
Singapore REITs - No Leisure Travel This Year?
- Singapore’s border may remain closed for leisure travellers until year-end.
- Ascott Residence Trust (SGX:HMN), CDL Hospitality Trusts (SGX:J85) issue profit warnings. We cut our FY20-22F DPU for the REITs.
- We believe the market has priced in the potential downside risks as the REITs are trading at 0.6-0.8 P/BV. Reiterate ADD on Ascott Residence Trust, CDL Hospitality Trusts, Far East Hospitality Trust (SGX:Q5T).
Singapore’s border may remain closed until year-end
- Singaporeans are unlikely to be able to travel for leisure this year. This could indicate that Singapore may not open its borders fully to foreign leisure travellers in the near term. This came after National Development Minister Lawrence Wong said Singapore’s travel advisory position is unlikely to change in the near term as Covid-19 remains widespread around the world. However, negotiations with countries on reciprocal green arrangements will proceed to facilitate essential business travel.
Cutting industry RevPAR forecasts
- We see the above as a likely scenario given the resurgence of cases in many countries recently. Hence, we lower our FY20F y-o-y industry RevPAR growth forecast from 60-70% to 40-50%. Our previous forecasts assumed an average of 80% recovery in tourist arrivals in 2H20F, but we now assume a recovery of 30% of last year’s arrivals.
- Business travellers only accounted for an average of 15% of Singapore’s total visitor arrivals over the past five years.
Ascott Residence Trust and CDL Hospitality Trusts issue profit warnings
- Given the challenging environment, Ascott Residence Trust and CDL Hospitality Trusts have also issued profit warnings recently.
- Ascott Residence Trust is expecting its DPU for 1HFY20 to fall by 65-75% y-o-y to 8.6-1.2 Scts, while CDL Hospitality Trusts is expecting its 1HFY20 DPU to decline by 60-70% y-o-y to 1.66-1.25 Scts. Expectations of both companies came in below our FY20F DPU forecasts. Hence, we reduce our Ascott Residence Trust’s and CDL Hospitality Trusts’s FY20-22F DPU by 18-53% and 16-36% respectively, factoring in larger declines in RevPAR/RevPAU.
- We believe Far East Hospitality Trust is in a better position vis-à-vis Ascott Residence Trust and CDL Hospitality Trusts given its hotels are fully backed by master leases. We expect a very gradual recovery for the hospitality sector as countries open their borders cautiously.
Reiterate ADD on Ascott Residence Trust, CDL Hospitality Trusts and Far East Hospitality Trust
- The market appears to have priced in the potential downside risks, with the REITs currently trading at 0.6-0.8x P/BV which appears to have factored in at least a 15% asset valuation decline for the REITs, based on our analysis. JLL is forecasting a 15-20% decline in valuation against the 2019 peak but believes this may be mitigated by strong financial position and long-term view of the hotel owners, low level of supply and safe haven status of Singapore.
- While the sector lacks catalysts in the near-term for share price outperformance, we reiterate ADD on Ascott Residence Trust, CDL Hospitality Trusts and Far East Hospitality Trust as value has emerged.
- Upside risks include capital distribution, better RevPAR/RevPAU and earlier opening of borders, while downside risks include prolonged border closures.
- See also report:
EING Kar Mei CFA
CGS-CIMB Research
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LOCK Mun Yee
CGS-CIMB Research
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https://www.cgs-cimb.com
2020-07-20
SGX Stock
Analyst Report
1.200
DOWN
1.31
0.590
SAME
0.590
1.060
DOWN
1.21
