DBS Group Research analysts Geraldine Wong and Derek Tan see things looking up for hospitality Singapore REITs (S-REITs) as signs of recovery emerge.
“Hospitality S-REITs reported strong performance in 3Q2021 and promise heading into 2022,” they highlight in a Nov 1 research note.
See: Focus on 'growth names' in S-REITs such as MLT, FLCT, A-REIT, Suntec REIT, MCT and FCT: DBS
The analysts note that revenue per average room (RevPAR) for hospitality S-REITs jumped between 50% to 300% q-o-q in countries such as Europe, US and Japan, driven by pent-up demand as vaccination rates rise.
“These markets proved to be well placed to see first green shoots, a déjà vu in our view of how China’s quick rebound in domestic tourism last year when the pandemic was largely contained,” they say.
With international travel borders re-opening gradually, the analysts believe that hospitality Singapore REITs will see “much rosier times” in the coming quarters. Their picks are Ascott Residence Trust (ART) and CDL Hospitality Trusts (CDLHT) for their more global hospitality footprint.
The way Wong and Tan see it, corporate demand is returning as travel borders re-open, with most S-REITs seeing more enquiries from project groups. This could potentially fuel a recovery for ART, Far East Hospitality Trust and Frasers Hospitality Trust’s serviced residence properties.
“With international travel still at a nascent growth stage, we see S-REITs exposed to large domestic markets to still outperform in the near term but acknowledge that leisure travel to destinations such as Australia, Maldives, Singapore may surprise on the upside,” they explain.
The analysts anticipate hoteliers to start re-pricing their room rates higher as demand rises and given the income structures of the various REITs, any RevPAR growth should be a straight flowthrough to distributions.
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In addition, the analysts point out that valuations remain attractive for hospitality S-REITs which are currently trading at around 0.8 times net asset value (NAV), compared to the historical mean of one time NAV. They expect valuations to normalize as operations ride the uptrend, with potential upside as bok valuations may be written higher, driving P/NAV even lower.
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Wong and Tan project earnings to grow over FY2022 to FY2023 at a compound annual growth rate of 30%, bringing yields towards 6% to 7% in the coming years and offsetting the low yield of 3.9% estimated for FY2021.
Units in ART and CDLHT closed at $1.06 and $1.20 respectively on Nov 5.
Photo: Bloomberg
