SINGAPORE (Oct 4): CDL Hospitality Trusts remains CGS-CIMB Securities’ top pick for 2019 while Far East Hospitality Trust is its pick for the near term.
CDL-HT is expected to deliver stronger growth in 2019 due to its hotels on Orchard Road and in the Maldives.
FEHT is CGS-CIMB’s pick for the near term as iits RevPAR growth was also one of the strongest in 1H2018 due to the completion of acquisitions and AEIs.
In an Wednesday report, lead CGS-CIMB analyst Eing Kar Mei says revenue per available room (RevPAR) in August grew by 5.5% y-o-y, delivering the 7th straight month of positive RevPAR growth.
This is a good turnaround, says Eing, underpinned by strong tourist arrivals which was up 7.5% from year to August as well as low room supply in 2018.
Based on CGS-CIMB’s room rate online research, the new hotels that opened in 2018 have kept their room rates reasonable and in line with industry average while conversations with REIT managers suggest more easing pricing pressure ahead.
“We expect RevPAR recovery momentum to pick up towards the end of the year,” says Eing.
Although recent strengthening of the Singdollar against certain currencies has raised concerns over its impact on the hospitality industry.
While a stronger Singdollar has in the past coincided with shorter average length of stay (ALS), the impact on overall RevPAR should be minimal as a declining average length of stay (ALS) is historically offset by the higher proportion of visitor days spent in hotels.
Year to date, the Singdollar has strengthened against the home currencies of 41% of the tourists to Singapore but weakened against the home currencies of 44% of the tourists.
“We reduce our RevPAR growth forecasts to 5.1% in 2018F and 2.5% in 2019F mainly to account for the shorter ALS YTD,” says Eing.
Despite slower forecast growth, this is still a hospitality REIT turnaround story given contractions in the past few years.
Once concerns over pricing pressure and stronger Singdollar are removed, "we believe the sector’s valuation could trade to at least 1x P/BV (versus 0.9x P/BV currently), which is the long-term average,” says Eing.
As at 2.09pm, units in CDL-HT and FEHT are trading at $1.60 and 64 cents respectively.
