Hospitality REITs 1H22 - Boosted By Strong Demand
- Ascott Residence Trust (SGX:HMN) and CDL Hospitality Trusts (SGX:J85) 1H22 DPU came in above our FY22F while Far East Hospitality Trust (SGX:Q5T) missed.
- Strong growth has 2Q/Jun 22 RevPARs surpassing 2019 levels in several markets. China and Japan continue to lag recovery due to travel restrictions.
- Our picks for the sector, in order of preference, are
Ascott Residence Trust's 1H22 results highlights
- Ascott Residence Trust’s 1H22 DPU of 2.33 cents (+14% y-o-y) was above at 55% of our FY22F. Excluding one-off items such as in 1H21 and 1H22, DPU would have been 120% higher y-o-y.
- 2Q RevPAR jumped 85% q-o-q due to a 40% q-o-q increase in average daily rate and occupancy improving from ~50% to ~70%. 2Q/Jun 22 RevPAU came in at ~82%/84% of 2Q19 levels. All markets except China registered higher q-o-q RevPAU, driven by stronger corporate and international demand. Main laggards in the portfolio are Japan, China and Vietnam, where 2Q22 RevPAU stands at 32%, 57% and 63% of 2Q19 levels.
- Ascott Residence Trust’s extended stay portfolio purpose-built student accommodation (PBSA) and rental housing assets remained resilient with average occupancy above 95%, accounting for 20% of 1H22 gross profit.
- In referencing Ascott Residence Trust’s forward bookings received to date, management believes that 2H22 performance would be on par or better than 2Q22’s operational performance, with US and Europe travel demand continuing to underpin a recovery.
- In terms of capital management, Ascott Residence Trust’s gearing of 37.5% translates into debt headroom of ~S$1bn, leaving room for it to pursue its mid-term 25-30% longer-stay accommodation asset allocation. 79% of its borrowings have been hedged into fixed rates. An additional 25bp change in interest rates would have a 1% DPU impact for Ascott Residence Trust.
CDL Hospitality Trusts' 1H22 results highlights
- CDL Hospitality Trusts reported a 49%/38% rise in 1H revenue and NPI to S$98.6m/S$51m. Distribution income of S$25.2m, +68% y-o-y, translates to DPU of 2.04 cents or at 40% of our FY22F forecast.
- 2Q22 portfolio RevPAR jumped 99.6% y-o-y, mainly driven by average daily rates which jumped 85.8% q-o-q while portfolio occupancy edged up 70.5% to 75.8%. Singapore properties delivered the strongest 2Q RevPAR growth at 99.6%, with Maldives, Japan and Australia RevPAR up 63.0%, 39.7% and 25.3%, respectively.
- Having trimmed its manpower headcount throughout the pandemic, CDL Hospitality Trusts was unable to maximise occupancy due to insufficient manpower. Its strong RevPAR growth was due to strong leisure demand, giving it the pricing power to successfully employ its yield management strategy. Meanwhile, the raising of the foreign dependency ratio by the Singapore Tourism Board helped to alleviate the labour crunch in its Singapore properties, although recruiting local employees is still a challenge.
- CDL Hospitality Trusts's management believes that recovery is still intact, with the return of more events, large group corporate demand and Chinese and Japanese tourists further driving RevPARs.
- CDL Hospitality Trusts’s gearing was 39.5% and 63.8% of its borrowings are on fixed rates. S$283m or 25.5% of its borrowing will be maturing at end-2022.
Far East Hospitality Trust's 1H22 results highlights
- Far East Hospitality Trust reported 1H22 revenue and NPI of S$41m and S$37.6m, -1.4% and +3.5% y-o-y respectively. Income available for distribution amounted to S$30.6m (inclusive of a S$1.6m distribution of divestment gain). 1H22 DPU of 1.54 cents was above expectations at 54% of our FY22F projections. Excluding the distribution of divestment gain, results would have been in line at 50.5% of our estimates.
- Revenue was impacted by the divestment of Central Square, but lower interest expense and distribution of S$1.6m of divestment gains more than offset the income vacuum.
- On operations, Far East Hospitality Trust reported a 31.4% rise in hotel RevPAR to S$67 while the serviced residence portion also improved by 31.9% to S$182.
- Hotel performance was affected by lower occupancy due to the closure of The Elizabeth Hotel for renovation, which was more than offset by a 50% surge in average room rates to S$99 as inbound traffic improved, along with higher contracted rates with the government.
- Serviced residence (SR) segment achieved RevPAU of S$182 and continues to trade above fixed rent level.
- Looking ahead, Far East Hospitality Trust's management remains upbeat on the prospects of the hospitality sector and anticipates that pent-up travel demand, particularly from corporate travellers. In addition, Far East Hospitality Trust has added another government contract, bringing its total government contract hotels to 4.
- With a low gearing of 33.3%, Far East Hospitality Trust is well placed to tap inorganic growth potential and would look to development markets for opportunities. 60.9% of its debt is hedged into fixed rates while its all-in interest cost averaged 1.8% in 1H. Management guided that every 25bp change in overall funding cost would impact its distribution income by up to 1%.
- Far East Hospitality Trust's management also articulated that it would continue to pay out more divestment gains totalling S$4m in 2H22 and a further S$8m annually for FY23F and FY24F.
Above is the excerpt from research report by CGS-CIMB.
Clients of CGS-CIMB may access the full report in PDF @ https://www.itradecimb.com.sg/.
LOCK Mun Yee CGS-CIMB Research | https://www.cgs-cimb.com 2022-07-30 2022-07-30
Read also CGS-CIMB's most recent report:
2022-10-29 CDL Hospitality Trusts - A Superb 3Q, Bolstered By Singapore Hotels
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