ARA US Hospitality Trusts - DBS Research 2022-06-14: Summer Holiday Magic


ARA US Hospitality Trusts - Summer Holiday Magic

  • Summer travel season brings much promise. ARA US Hospitality Trust is well exposed in highly vaccinated states, with a 42% exposure to leisure and airport regions expected to capture pent up demand.
  • Expecting profitability in the upcoming quarters; mid-year revaluation may quell woes on gearing. Maintain BUY rating on ARA US Hospitality Trust.

Gearing up for a busy holiday season ahead.

  • In 1Q22 results, ARA US Hospitality Trust (SGX:XZL)'s management shared that forward bookings for 2Q22 were coming in stronger than pre-COVID levels. Further, using Hyatt Hotels as a proxy, April 2022 RevPAR for the Americas region exceeded pre-COVID levels by 3%. In comparison, system-wide RevPAR in May 2022 at ~US$127 was the highest since November 2019.
  • Looking ahead, the rebound in travel demand might be faster than we initially anticipated.

‘Bleisure’ trend likely contributed to summer travel boom.

  • Bleisure travel – which is a combination of business and leisure travel – is on the rise. With travel plans delayed or cancelled due to the pandemic, many are now taking the opportunity to extend a work trip for leisure, especially in an era of hybrid working. In this context, we believe that this travel demand could have been spurred by bleisure demand in addition to just pure leisure demand.

More room for rate hikes; good inflation hedge.

  • With travel demand ahead looking more optimistic than expected, we see potential for ARA US Hospitality Trust to increase room rates.
  • Given that the select-service room offering is generally more affordable than full-service hotels, the crunch in room rates could see a similar hike in room rates for the middle to upper-middle accommodation offering in tandem to luxury-tier full-service hotels.
  • We also like the fact that room rate repricing is dynamic, acting as a good hedge in an inflationary environment.

Recovery in RevPAR to drive share-price re-rating.

  • We believe that ARA US Hospitality Trust will likely see an uplift in RevPAR ahead as
    1. we turn more positive on travel demand and
    2. on the back of inflationary pressures as well as higher willingness to spend.
  • According to a study by Skyscanner, travellers are spending more on accommodation even amid a higher cost of living. We think there could be two reasons for this:
    1. High level of savings from not travelling in the past two years and
    2. immense pent-up demand.
  • Hence, we look forward to higher RevPAR figures for 2Q22 and 3Q22, which we think has not priced in yet.

Paring down of debt likely the immediate priority.

  • ARA US Hospitality Trust’s hawkish interest rate environment, and an improvement from their 44.3% leverage ratio as at end FY21.

Bullish on both top line and bottom

Geraldine WONG DBS Group Research | Tabitha FOO DBS Research | https://www.dbs.com/insightsdirect/ 2022-06-14
SGX Stock Analyst Report BUY MAINTAIN BUY 0.70 SAME 0.70