• More targeted response by countries to curb Omicron spread to delay but not derail travel plans. 
  • Tourist-dependent Singapore hotels unlikely to be impacted significantly given myriad of domestic demand drivers 
  • 2022 remains a banner year with a c.40% y-o-y growth in RevPAR driving significant upside to yields
  • Top picks are ART and FEHT for exposure in large domestic markets and high stable rents

Travel plans take a back seat with untimely emergence of Omicron. The sudden emergence of the Omicron variant has sent nations across the world back on high alert. However, we note that strategies that countries have employed this time round are more targeted at preventing the importation of the virus (i.e., halting inbound travellers from South Africa or the closure of borders in some countries) and have an increased focus on more testing and quarantine requirements for travellers until more datapoints are forthcoming from the WHO. With vaccination rates higher globally this time round, we remain optimistic that any delay in re-opening is unlikely to be extended; we have not yet seen any restrictions on travelling domestically.  

Singapore’s border reopening strategy delayed but not derailed. Singapore rapidly established Vaccinated Travel Lanes (VTLs) with 27 partner countries in 4Q21, which we estimate cover c.57% of inbound visitor markets pre-COVID. While Singapore may have halted VTL expansion plans in the immediate term, pending more datapoints on the Omicron virus, we think that the long-term strategy of gradually pulling the tourism sector and business travel segment back to normalcy remains and can be quickly ramped up just as they are halted. In the immediate term, despite the near-term set-back, we do not see Singapore hoteliers slipping into losses given that (i) staycation demand should remain strong especially for families who are unlikely to travel and (ii) government quarantine business lasting until 1Q22 may be extended when needed, providing much needed cashflows for hoteliers. 

More reasons to remain hopeful, top picks ART and FEHT for their ability to ride the upcycle faster. 2021 was a softer-than-expected year for us but we maintain that year 2022 onwards brings much hope. The Hospitality S-REITs trade at attractive valuations at 0.93x–0.74x P/NAV. When travel momentum starts, we expect DPU growth to remain robust in the range of 16–43%, despite softer growth estimates. Prefer Ascott Residence Trust (TP S$1.30) and Far East Hospitality Trust (TP S$0.78) on exposure in large domestic markets and higher stable rent make-up.