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Singapore Hospitality REITs - OCBC Investment 2020-12-18: Beneficiary Of Vaccine Development

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

Singapore Hospitality REITs - Beneficiary Of Vaccine Development

  • Worst is likely over.
  • Recovery to pick up in 2H21.
  • Improved outlook on rapid vaccine development.


Sequential improvement in RevPAR/RevPAU

  • While RevPAR/RevPAU was still down y-o-y due to headwinds from COVID-19, we saw some recovery in 3Q20 as compared to 2Q20, driven by easing travel restrictions, reopening of temporarily closed properties, recovery in domestic travel in some markets, block bookings from government as well as bookings from foreign workers affected by border closures.
  • Ascott Residence Trust's 3Q20 portfolio RevPAU fell 70% y-o-y to S$47 but improved 27% on a q-o-q basis. Average portfolio occupancy increased from 30% in 2Q to 40% in 3Q20.
  • For CDL Hospitality Trusts’ Singapore (excluding W Hotel) portfolio, RevPAR fell 60.9% y-o-y in 3Q to S$64 but improved 8.5% q-o-q. Including W Hotel, RevPAR would have fallen 58.2% y-o-y but improved 27% q-o-q on strong staycation demand at W Hotel. Performances of CDL Hospitality Trusts’ overseas hotels were generally weaker despite some recovery q-o-q. The only exceptions were New Zealand (RevPAR of +0.4% y-o-y in 3Q, helped by government’s isolation business) and Australia (essentially on fixed rent structure).
  • For Far East Hospitality Trust, its Hotel segment’s RevPAR was down 56% y-o-y to S$67 (+4.4% q-o-q), while RevPAU for its Serviced Residences’ (SR) segment fell 20% y-o-y to S$157 (+2.6% q-o-q). Overall, the performances of Serviced Residences (SR) remained more resilient as compared to Hotels, helped by SRs’ long-stay leases from corporate business.


Occupancies continued to be supported by alternative sources of income but demand likely to taper off in 4Q20

  • Overall, we observe that
    1. Japan, Europe, UK, US and Maldives were among the worst performing countries for Ascott Residence Trust and CDL Hospitality Trusts due to travel bans and lockdowns;
    2. countries with large domestic markets such as China led the recovery;
    3. countries catering to transient travellers e.g. Japan, UK, US were more impacted than those catering to long-stay travellers e.g. China, Singapore and Vietnam;
    4. occupancies continued to be supported by alternative sources of income such as bookings for self-isolation, healthcare personnel and workers affected by border shutdown, student accommodation for some countries such as Singapore, Australia etc.
  • While occupancies have largely been supported by alternative sources of income for Singapore in 9M20, we expect the demand for ‘isolation business’ and Malaysian Control Order (MCO) related-businesses to taper offer in 4Q20 as border reopens and the number of COVID-19 cases becomes more stabilised in Singapore. We understand from the management that the contracts with government for isolation business can be terminated after a short period of notice i.e. 21 days from the government.


Driving domestic tourism

  • To make up for losses in occupancies from COVID-19 and potential termination of government bulk-bookings in the coming months, Ascott Residence Trust, CDL Hospitality Trusts and Far East Hospitality Trust are tapping on opportunities relating to staycation to boost domestic tourism in Singapore.
  • While hotel operators have received healthy demand from staycation due to pent-up demand, we believe that competition is intense and hotel operators likely to keep a cap on the occupancy rates due to social distancing and safety measures. We believe that staycation would remain largely a weekend business and it is unlikely to make up for losses in weekday occupancies and compensate for the income shortfall from COVID-19.


Near-term challenges remain but turning more positive over medium-term on vaccine developments

  • Hospitality REITs’ share price performances have been boosted by rapid vaccine progress from companies such as Pfizer and BioNTech, Moderna, and AstraZeneca and Oxford University's potential COVID-19 vaccine etc.
  • On 14 December, Singapore’s Prime Minister Lee Hsien Loong announced in a nation address that Singapore has approved Pfizer and BioNTech's COVID-19 vaccine, with the first shipment expected to arrive by the end of 2020 and other vaccines to arrive in Singapore in the coming months. PM Lee also highlighted that there will be “enough vaccines for everyone” by 3Q21 if everything goes according to plan. Other measures already put in place such as social distancing and mass testing will continue alongside the vaccinations to help ensure that the virus is kept under control. These could continue for possibly a year or longer, according to PM Lee.
  • We have turned more positive on hospitality REITs following these encouraging developments and believe the worst is likely over with recovery ahead. However, near-term challenges remain with resurgence of COVID-19 in Europe, US and Hong Kong and depressed travel demand. RevPAR/RevPAU and profitability could remain under pressure in 4Q20 and 1H21.
  • While we see a recovery in 2021, particularly stronger in 2H21, we expect a full recovery of RevPAR/RevPAU to pre-COVID-19 levels only in 2022 or 2023, assuming the vaccine will be widely available by mid-2021.
  • For the 3 hospitality REITs under our coverage, our order of preference is
    1. Ascott Residence Trust (SGX:HMN) [BUY; Fair value estimate: S$1.20],
    2. CDL Hospitality Trusts (SGX:J85) [HOLD; Fair value estimate: S$1.39] and
    3. Far East Hospitality Trust (SGX:Q5T) [HOLD; Fair value estimate: S$0.66].
  • While the three hospitality names under our coverage rallied 13%-27% in November, we believe valuations are still undemanding, especially given the positive progress on vaccines and a more visible roadmap to recovery in 2021. The re-rating of hospitality REITs could continue given the forward-looking nature of investors who are likely to focus more on normalised FY22 earnings, although volatility in share prices is likely.

Ascott Residence Trust (SGX:HMN)


CDL Hospitality Trusts (SGX:J85)

Far East Hospitality Trust (SGX:Q5T)






Chu Peng OCBC Investment Research | https://www.iocbc.com/ 2020-12-18
SGX Stock Analyst Report BUY MAINTAIN BUY 1.200 SAME 1.200
HOLD DOWNGRADE BUY 1.390 SAME 1.390
HOLD MAINTAIN HOLD 0.660 SAME 0.660


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