Highlighted Companies
CapitaLand Ascott Trust ADD, TP S$1.25, S$0.98 close
ART’s geographically diversified portfolio of SRs, business hotels and extended stay assets strike a balance between stable and growth income, with long-stay demand providing stability while shorterstay accommodation allow it to drive rates.
CDL Hospitality Trust ADD, TP S$1.38, S$1.15 close
With 66% of its AUM in Singapore, CDREIT is a proxy for the recovery of the Singapore hospitality sector. AEIs at several of its properties and strong demand across its key markets should support further RevPAR growth.
Far East Hospitality Trust ADD, TP S$0.80, S$0.595 close
FEHT is our top pick in the sector. Strong corporate demand for SRs and its newly revamped hotel offerings have helped to drive room rates. Together with capital gain distributions from Central Square,
FEHT offers 7.7% FY23F dividend yield.
Catch this travel bug!
- Latest hospitality data suggests earlier-than-expected recovery by hoteliers.
- We move up Singapore hotel recovery timeline from FY24F to FY23F.
- Ride hospitality recovery at attractive 6.4-7.7% FY23F yields.
Sustaining pre-pandemic RevPAR
Singapore welcomed 729k international visitor arrivals (IVA) in Aug 22, at 42% of Aug 19 levels, bringing 8M22 IVA to 3.0m. Indonesia, India, Malaysia, Australia and the Philippines were the top five source markets in Aug 22. At this run rate, we think that the full year IVA numbers for 2022F could come in at the higher range of STB’s 4m-6m forecast. Strong pricing power by hoteliers were evident in May-Aug 22 RevPAR numbers, which have recovered to 93-104% of 2019 levels. At this juncture, RevPAR recovery is ahead of our expectation as we have previously expected a full recovery to materialise in 2024F.
Moving up our recovery timeline from FY24F to FY23F
The latest RevPAR data point has prompted us to accelerate our RevPAR recovery timeline and we now expect to reach pre-pandemic RevPAR levels in 2023F. Our base case does not factor in the full return of Chinese tourists, which accounted for 2.2% of IVA YTD, compared to 19% of IVA in 2019. If the Chinese borders reopen by 2H23, we estimate that RevPAR could potentially surpass pre-pandemic levels to reach 110-115% of prepandemic levels. Furthermore, our channel checks indicate that capacity-related operational constraints have been partly alleviated by the recent hiring spree and use of casual labour. However, in this inflationary environment, higher utilities and staffing cost may cap margins in the near-term.
CDREIT/FEHT FY22F-25F DPUs raised by 1.8-25.6%
We lift our FY22-25F DPU estimates for hospitality REITs under our coverage on the back of accelerated recovery assumptions. FEHT’s FY22F-24F DPU is raised by 8.5-25.6% on faster RevPAR recovery factoring in the divestment of Village Residence Central Square and distribution of SS$8.3m p.a. in divestment gains. We tweak CDREIT’s FY22-24F DPU by 1.8-15.6% to factor in a faster recovery for Singapore portfolio which accounts for 49% of FY22F NPI, partially offset by higher utilities and cost of debt assumptions. Singapore accounts for c.10% of ART’s FY22F gross profit. We tweak FY22F-25F DPU by -5.1% to 10.9% on better-than-forecasted performance of its overseas assets, while lowering our capital gain distribution assumptions for FY22F-25F.
Prefer FEHT for its robust balance sheet and 7.6% FY23F yield
Our picks for the hospitality sector in order of preference are FEHT, ART and CDLHT. FEHT is expected to deliver 5.2%/7.6% FY22F/23F DPU yields, ahead of CLAS’s 5.8%/6.7% and CDLHT’s 5.1%/6.5%. FEHT’s balance sheet is robust with gearing coming in at 33.5% (vs. CLAS’s 37.5% and CDLHT’s 39.5%) and only 18% of loans up for refinancing over FY22-23F (vs. 41% and 40%), exposing it to less interest rate risk.
