Hospitality REITs - Catch This Travel Bug!
- 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.
- 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 year-to-date, 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 pre-pandemic 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.
- We lift our FY22-25F DPU estimates for hospitality REITs under our coverage on the back of accelerated recovery assumptions.
- Far East Hospitality Trust (SGX:Q5T)’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 CDL Hospitality Trusts (SGX:J85)’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 ~10% of CapitaLand Ascott Trust (SGX:HMN)’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.
- Our picks for the hospitality sector in order of preference are Far East Hospitality Trust > CapitaLand Ascott Trust > CDL Hospitality Trusts.
- Far East Hospitality Trust is expected to deliver 5.2%/7.6% FY22F/23F DPU yields, ahead of CapitaLand Ascott Trust’s 5.8%/6.7% and CDL Hospitality Trusts’s 5.1%/6.5%.
- Far East Hospitality Trust’s balance sheet is robust with gearing coming in at 33.5% (vs. CapitaLand Ascott Trust’s 37.5% and CDL Hospitality Trusts’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.
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 | Natalie ONG CGS-CIMB Research | https://www.cgs-cimb.com 2022-10-07 2022-10-07
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