CGS-CIMB Research analysts Natalie Ong and Lock Mun Yee are reiterating their “overweight” rating on hospitality S-REITs on strong tourism recovery, with CapitaLand Ascott Trust (CLAS) as their top pick.
In their July 28 report, the analysts note that CLAS, CDL Hospitality Trust (CDLHT) and Far East Hospitality Trust (FEHT) Q5T delivered 1HFY2023 y-o-y DPU growth of 19.3% to 23.3% as higher interest cost was offset by stronger operating performance.
They further highlight that 2QFY2023’s revenue generated per room (RevPAR) in most geographies were 100% to 127% of 2QFY2019 levels, except New Zealand, China and Vietnam, which underperformed.
Ong and Lock have an “add” call on CLAS with a target price of $1.27. The analysts like the REIT for its diversified and balanced portfolio, which provides both stability and upside exposure to the hospitality sector as well as portfolio reconstitution opportunities.
“CLAS’s geographically diversified portfolio of service residences, 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,” the analysts add.
CGS-CIMB also reiterates its “add” call on CDLHT with a target price of $1.55. The analysts believe that the REIT is poised to benefit from the hospitality recovery in its key geographies of Singapore, Australia, the UK and Japan.
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With 66% of its assets under management in Singapore, CDLHT is a proxy for the recovery of the Singapore hospitality sector. The asset enhancement initiatives at several of its properties as well as the strong demand across its key markets should support further RevPAR growth, Ong and Lock point out.
Lastly, the analysts maintain their “add” call on FEHT with a target price of 77 cents. Ong and Lock think that FEHT is a potential re-rating play, with geographical diversification being the key re-rating catalyst.
The analysts add that the Singapore pure play has strong corporate demand for service residences, which has pushed occupancies and RevPAR above 2019 levels. Meanwhile, its newly revamped hotel offerings should drive room rates. Including the capital gain distributions from the divestment of Central Square, FEHT offers 5.9% FY2023 dividend yield, CGS-CIMB highlights.
As at 12.09pm, units in CLAS, CDLHT and FEHT are trading at $1.11, $1.19 and 64.5 cents respectively.
