Highlighted Companies
CapitaLand Ascott Trust
ADD, TP S$1.27, S$1.11 close
Our top pick for the sector. CLAS’s geographically diversified portfolio of SRs, business hotels and extended stay assets strikes a balance between stable and growth income, with long-stay demand
providing stability while shorter-stay accommodations allow it to drive rates.
CDL Hospitality Trust
ADD, TP S$1.55, S$1.20 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$0.77, S$0.64 close
FEHT is a Singapore pure play. Strong corporate demand for SRs has pushed occupancies and RevPAR above 2019 levels while its newly revamped hotel offerings should drive room rates. Including capital gain distributions from the divestment of Central Square, FEHT offers 5.9% FY23F dividend yield.
Hospitality SREIT did not disappoint in 2Q23
- CLAS, CDREIT and FEHT delivered 1H23 yoy DPU growth of 19.3-23.3% as higher interest cost was offset by stronger operating performance.
- 2Q23 RevPARs in most geographies were 100-127% of 2Q19 levels, except New Zealand, China and Vietnam, which underperformed.
- Reiterate Overweight rating on strong tourism recovery. Downside risks and lacklustre leisure/corporate travel demand which could lower RevPARs.
CapitaLand Ascott Trust 1H23 results highlights
? We deem its 1H23 DPU of 2.78 Scts (+19.3% yoy) in line at 45.9% of our FY23F forecast, with 2H historically stronger. Excluding one-offs, DPU increased 37% yoy.
? 1H23 revenue/NPI rose 30%/31% yoy to S$346.9m/S$154.4m, mainly due to improvement in operating performance of its properties and the acquisition of 14 longerstay assets in FY22 and 2Q23.
? 2Q/1H23 RevPAU climbed 20%/44% yoy to S$149/S$138, with 2Q RevPAU reaching 98% of pre-Covid-19 pro forma RevPAU. On a same-store basis, 6 out of CLAS’s 8 key markets were at or above pre-Covid-19 levels; Australia was 105%, Japan 109%, Singapore 127%, France c.100%, the US 100% and UK 127%. China and Vietnam’s
RevPAU inched closer to their respective pre-Covid-19 levels, to 78% and 83%.
? Interest cost and gearing remained stable qoq at 2.3% and 38.6%, respectively, while interest coverage slipped to 4.3x. As of 2Q23, 80% of CLAS’s loans were on fixed rates, with 13% of total loans maturing in FY23F, denominated in JPY, A$ and €.
? CLAS announced that it is divesting 4 properties in France for €44.4m (S$63.4m) to an unrelated third party; the transaction should conclude in 4Q23F. The sale price is 63% above book value, implying c.4% exit yield and unlocking net gains of €0.2m (S$0.3m).
? Reiterate Add with an unchanged DDM-based TP of S$1.27. CLAS’s diversified and balanced portfolio provides both stability and upside exposure to the hospitality sector as well as portfolio reconstitution opportunities.
CDL Hospitality Trust 1H23 results highlights
? 1H23 DPU rose 23% yoy to 2.51 Scts, 38.4% of our FY23F, which we deem in line.
? 1H23 revenue rose 20.9% yoy to S$119.2m while NPI climbed 23.3% yoy to S$62.9m on better Singapore, Japan, Australia, Europe and UK markets as well as a full 6 months’ contribution from Hotel Brooklyn, partly offset by lower New Zealand and Maldives performance.
? Yoy RevPAR growth was strong in Singapore (2Q/1H23 +20.7%/+45.8%), Japan (2Q/1H23 +141.5%/+143%) and Europe (2Q/1H23 – Germany +40.5%/+64.7%, Italy +57.5%/+66.4%, UK +10.1%/+14.5%) but Australia, New Zealand and Maldives lagged.
? Gearing and interest coverage ratio was 37.9% and 3.2x at end-1H23 while cost of debt rose to 4.1%.
? Reiterate Add and DDM-based TP of S$1.55. CDREIT is poised to benefit from the hospitality recovery in its key geographies of Singapore, Australia, UK and Japan.
Far East Hospitality Trust 1H23 results highlights
? 1H23 DPU of 1.92 Scts (+24.7% yoy) was in line at 50.2% of our FY23F.
? Revenue for the hotel and serviced residence segments grew 35.4% and 2.8% yoy, respectively, surpassing 1H19 levels on a same-store basis.
? Despite the disposal of Central Square, revenue from the retail and office spaces grew 11.0% yoy (+22.8% on same-store basis) on the back of higher occupancies and rents.
? 2Q hotel RevPAR dipped 3.0% qoq but surged 72.4% yoy to 91.8% of 2Q19 levels. This was expected given that three of its hotels were in the gestation stages after exiting government booking in early-Mar 23. Service residences (SRs) continued to hold up well with 2Q23 RevPAR down 0.4% qoq but rising 16.1% yoy to 123.1% of 2Q19 levels.
? On the balance sheet front, gearing, average cost of debt and interest rate coverage were stable qoq at 32.0%, 3.2% and 3.6x.
? Reiterate Add with unchanged DDM-based TP of S$0.77. We think FEHT is a potential re-rating play with geographical diversification being the key rerating catalyst.
