Singapore Hospitality REITs - CGS-CIMB Research 2021-07-06: RevPAR likely stronger in 2Q 2021

ASCOTT RESIDENCE TRUST (SGX:HMN) CDL HOSPITALITY TRUSTS (SGX:J85) FAR EAST HOSPITALITY TRUST (SGX:Q5T)

Singapore Hospitality REITs - RevPAR likely stronger in 2Q

Increasing vaccination rates globally point to a more sustainable recovery.
We expect the REITs to deliver an overall better RevPAR q-o-q in 2Q2021.
Reiterate ADD calls on Ascott Residence Trust (SGX:HMN), CDL Hospitality Trusts (SGX:J85) and Far East Hospitality Trust (SGX:Q5T).
Ascott Residence Trust (SGX:HMN) is our top pick.

Singapore’s hotel occupancy would mainly be supported by government contracts in 2021. As COVID-19 cases have risen recently, the number of hotels being signed up for government contracts have increased since May 2021 to ~40% in Jun vs 30% Dec last year, according to STR (Smith Travel Research).
Our model assumes ~60% of the REITs’ occupancy in Singapore to be supported by government contracts in 2021 before tapering off to an average of ~40% in 2022. We believe the interest for government contracts remains strong given weak leisure demand.
Despite the month-long school holiday in 29 May 2021 to 27 Jun 2021, we think staycation demand was limited in 2Q2021 due to the heightened alert imposed since 16 May 2021. Except for hotels based in Sentosa, we expect the demand for non-government contract hotels in 2Q2021 to be mainly driven by corporate businesses.
STB (Singapore Tourism Board) stats show that the occupancy rates of luxury hotels which we believe is mainly cater to leisure demand, declined to the lowest level since Jul 20 in May 2021, which we believe was due to the Heightened Alert. Overall, we expect Singapore to deliver a stronger RevPAR q-o-q.

Overseas, Europe, US and China likely saw RevPAR improvements in 2Q2021F vs 1Q2021.
- In Europe, there were generally less restrictive COVID-19 measures in 2Q2021 vs 1Q2021.
- In the US, hotel occupancies and RevPAR continued to climb on a m-o-m basis in May-Jun 2021 on the back of declining COVID-19 cases and increasing vaccination rates.
- In China, occupancy and ADR in 2Q2021 recovered to pre-COVID-19 levels after the seasonal lull for corporate travel and localised lockdowns in 1Q2021.
In Australia/New Zealand, occupancy has been improving gradually since Jan 2021 but Australia’s q-o-q recovery was likely not strong in 2Q2021 due to sporadic tighter restrictions in Apr-Jun 2021.
In Maldives, q-o-q RevPAR could be weaker due to the ban on visitors from South Asian countries since 9 May 2021, movement restrictions since 28 May 2021, and the seasonal lull in 2Q.
We believe Japan and Malaysia RevPAR remained weak in 2Q2021 as both countries were mostly in restriction mode in 1H2021.

We expect Ascott Residence Trust (SGX:HMN) to deliver stronger overall q-o-q RevPAU in 2Q2021F, driven mainly by Europe, and China.
As for CDL Hospitality Trusts (SGX:J85), we believe overall RevPAR was better q-o-q, driven mainly by Europe and some staycation demand in Singapore.
We think Far East Hospitality Trust (SGX:Q5T) will deliver stronger q-o-q hotel RevPAR, driven by corporate business and some staycation demand but overall income could be lower q-o-q due to the potential weaker variable income from the service residence segment. Far East Hospitality Trust is a close candidate for EPRA Nareit inclusion.
Our top pick remains Ascott Residence Trust. With rising vaccination rates globally, we think the recovery going forward would be more sustainable vs last year. The REITs are trading below book and we believe market will price in ahead of recovery. See the 17-page PDF report attached below for complete analysis.

EING Kar Mei CFA CGS-CIMB Research | LOCK Mun Yee CGS-CIMB Research | https://www.cgs-cimb.com 2021-07-06

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