? ART’s and CDLHT’s FY21 DPU came in line with our forecast.
? Most markets saw better yoy RevPAR/RevPAU in 2H21.
? Expect greater travel demand this year on fewer movement restrictions.
Both ART and CDLHT posted stronger yoy revenue and NPI in FY21
ART and CDLHT announced 4QFY21 results. ART’s and CLDHT’s FY21 DPU of 4.32 Scts (+43% yoy) and 4.27 Scts (-13.7% yoy) came in line at 102% and 105% of our full-year forecasts, respectively. ART’s FY21 revenue and gross profit increased 7% and 16% yoy to S$394m and S$173m, respectively. CDLHT’s FY21 revenue increased 34.3% yoy to S$157.7m, while NPI grew 24.2% yoy to S$86.1m. Both REITs did capital distribution to mitigate the impact of Covid-19. ART distributed S$45m (same amount as last year). CDLHT, on the other hand, declared low er capital distribution of c.S$15m vs. S$20m last year.
Most markets saw stronger yoy RevPAR/RevPAU in 2HFY21
Both REITs saw encouraging RevPAR/RevPAU improvement in 2HFY21 yoy in most of the markets, largely driven by the easing of domestic travel and border restrictions in 2H21. ART’s portfolio RevPAU continued its upward trajectory, rising over six consecutive quarters since 2Q20 and reported the strongest qoq RevPAU increase (+24%) in 4Q21. ART saw stronger demand from both corporate and leisure segments. All ART’s key markets under management contracts, except Vietnam (-13% yoy, due to lockdowns in HCM and Hanoi in 3Q21), delivered stronger yoy RevPAU in 2H21. For CDLHT, all markets reported stronger yoy RevPAU in 2HFY21 except for Australia (-23% yoy) due to international border closures and limited interstate travel into Western Australia.
Government contracts decline as Covid-19 cases stabilise
In Singapore, w e note that the government has started trimming its exposure to utilising hotels for Covid-19 isolation purposes. CDLHT now has tw o hotels under government contracts vs. six previously. In Australia, ART’s number of properties under government contracts has also been reduced from 3 to 1. As many countries shift their approach from eliminating Covid-19 to living with Covid-19, the release of hotels from contracts was not surprising although it is faster than expected. While the cessation of government contracts would introduce more uncertainties to the properties involved, we think it is timely given the recovery in travel currently. The gradual easing of Covid-19 measures going forward should
help to support demand for these properties. As CDLHT’s Singapore hotels are supported by master lease income and are trading at minimum income, the cessation of government contracts should not have a material financial impact on CDLHT.
Increasing longer-stay assets to enhance income stability
In terms of acquisition, both REITs are keen to increase exposure to longer-stay assets such as student accommodation and build-to-rent assets which remained resilient despite the pandemic. ART is now targeting to have 25-30% of its portfolio in this asset class in the medium term vs. 15-20% previously. Student accommodation and rental housing currently account for 16% of the portfolio value. Lyf one-north Singapore which soft-opened in Nov 21, achieved 96% occupancy during the first phase of opening. For CDLHT, the construction of its new build-to-rent has commenced and targeted to complete in 2024.
Valuations remain attractive; top pick is ART
The emergence of Omicron has delayed the recovery of the tourism industry, but we remain optimistic that the industry will rebound. We see greater demand from both international and domestic travel as w e project few er domestic tightening and international border restriction measures this year as compared to last year. The hospitality REITs are trading below NAV at 0.67-0.85x. We see further re-rating on stronger RevPAR. Re-rating catalysts include faster recovery and higher income top-up and vice-versa for downside risks.