CDL HOSPITALITY TRUSTS (SGX:J85)
ASCOTT RESIDENCE TRUST (SGX:HMN)
FAR EAST HOSPITALITY TRUST (SGX:Q5T)
Singapore Hospitality REITs - Improved Q-o-q
- Hospitality REITs’ RevPAR declined 56-95% in 3Q20 due to COVID-19.
- We expect Singapore government business to gradually decline, partially offset by staycation and special travel arrangements with various countries.
- Far East Hospitality Trust (SGX:Q5T) remains our top pick given that its assets are backed by master leases.
Singapore Hospitality REIT's 9MFY20 revenue and NPI decline y-o-y
- CDL Hospitality Trusts (SGX:J85)’s 9M20 NPI of S$44.9m (-56.5% y-o-y) came in at 65% of our full-year forecast.
- Far East Hospitality Trust (SGX:Q5T)’s 9M20 distributable income declined 31.7% y-o-y to S$37.7m and came in at 76% of our full-year forecast.
- Vis-à-vis 3Q19, CDL Hospitality Trusts’s 3Q20 NPI fell 57.4% while Far East Hospitality Trust’s declined 36.4%.
- On a q-o-q basis, CDL Hospitality Trusts’s NPI increased 49.4% while Far East Hospitality Trust saw a decline of 4.7% mainly due to rental rebates given to its commercial tenants.
RevPAR declined y-o-y but improved q-o-q
- Ascott Residence Trust (SGX:HMN)’s 3Q20 RevPAU fell 70% y-o-y but improved 27% q-o-q. Being more diversified with higher exposure to serviced residence segment, we believe it will be less impacted by COVID-19.
- CDL Hospitality Trusts’s 3Q20 Singapore RevPAR declined 60.9% y-o-y on a like-for-like basis. On a q-o-q basis, Singapore RevPAR improved 8.5%. Overseas’ (ex-NZ) RevPAR down 60-95% y-o-y.
- Far East Hospitality Trust’s 3Q20 hotel RevPAR declined 55.8% y-o-y while serviced residence was more resilient with RevPAU dropped 20.1% y-o-y. On a q-o-q basis, RevPAR improved c.5% while RevPAU improved c.3%. Far East Hospitality Trust secured alternative business early in 2Q20 which partly explained the weaker q-o-q growth.
- While CDL Hospitality Trusts’s and Far East Hospitality Trust’s 3Q Singapore RevPAR declined 60.9% (on a like-for-like basis, excluding W Hotel) and 55.8% y-o-y, respectively, dragged down mainly by lower average daily rate due to the low room rate from alternative businesses, the REITs’ RevPAR improved q-o-q due to higher occupancy rate which offset the lower room rate which we believe was driven by higher demand from foreign workers.
- Overseas, in 3Q20, CDL Hospitality Trusts saw 60-95% decline in RevPAR y-o-y (except NZ which was supported by alternative business) while Ascott Residence Trust’s RevPAU fell 70% y-o-y.
- On a q-o-q basis, Ascott Residence Trust saw encouraging improvement of 27% q-o-q. Countries with strong domestic demand and long stay guests such as China (3Q RevPAU -30% y-o-y) and Vietnam (3Q RevPAU -58% y-o-y) saw more resilient performance.
Outlook remains uncertain; expect a gradual recovery
- While Far East Hospitality Trust’s leases with the sponsor will not be up for renewal until 2032, Ascott Residence Trust has 14% of income which is up for renewal in 2020 and 12% in 2021 while CDL Hospitality Trusts has two more Australia hotels (after the disposal of Novotel Brisbane) which accounted for 2.3% of 2019 income to be renewed in 2021. We believe these leases are unlikely to be renewed at the same level of fixed rent.
- Given the well-controlled COVID-19 cases in Singapore, we believe the government will gradually reduce its block-booking of hotels. Currently, most of the hotels are contracted until early 2021 but this can be terminated anytime.
- The weaker block-booking demand could be partially offset by the special travel arrangements set up with various countries as well as staycation business. The outlook is uncertain to us with rising COVID-19 cases. On a brighter note, the REITs have no issue in fulfilling its near-term obligations.
Far East Hospitality Trust remains our top pick; Ascott Residence Trust for recovery
- Far East Hospitality Trust remains our top pick for the sector given all its properties are backed by master lease income and have limited downside.
- For initial recovery before the reopening of international borders, we prefer Ascott Residence Trust given its high exposure to domestic demand.
- While the sector is lacking near-term catalysts as the business environment remains uncertain, we believe the market has priced in the impact of COVID-19 as the REITs are trading at 0.6-0.7x P/BV, pricing in 15-20% asset devaluation.
- Re-rating catalysts include faster recovery from COVID-19.
- Downside risks include prolonged impact from COVID-19.
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
2020-10-31
SGX Stock
Analyst Report
1.160
SAME
1.160
1.050
SAME
1.050
0.629
SAME
0.629
