CGS-CIMB Research anticipates Singapore hospitality REITs to deliver better revenue per average room (RevPAR) in the 2Q2021, on the back of government contracts in Singapore combined with better performance from select overseas markets.
For Singapore, analysts Eing Kar Mei and Lock Mun Yee point out that following the rise in Covid-19 cases in recent months, government contracts for hotels have risen to 40% as of June, compared to 30% in December 2020.
Eing and Lock expect this government-driven support to continue into 2022, anticipating that some 60% of REITs’ occupancy will be supported by government contracts in 2021 before this comes down to an average of 40% in 2022.
They also note that leisure demand for Singapore hotels remained weak during 2Q2021 due to the heightened alert imposed from May 16. “Except for hotels based in Sentosa, we expect the demand for non-government contract hotels in 2Q2021 to be mainly driven by corporate businesses,” the analysts add.
Nonetheless, Eing and Lock believe Singapore will deliver an overall stronger RevPAR on a q-o-q basis in the 2Q.
Beyond Singapore, the analysts view that Europe, US and China likely saw y-o-y RevPAR improvements in the 2Q2021, thanks to less restrictive Covid-19 measures and higher vaccination rates.
See also: Singapore's hospitality sector kept at 'neutral' by OCBC
For Australia and New Zealand, while occupancy has improved gradually since the start of the year, Australia’s recovery in 2Q2021 was stymied by tighter restrictions in April-June. For Maldives, the analysts believe RevPAR could be weaker due the ban on visitors from South Asian countries since May 9 as well as the seasonal lull in 2Q. RevPAR in Japan and Malaysia are also expected to remain weak given on-going Covid-19 restrictions.
Given the outlook for Singapore and the rest of the world, Eing and Lock reiterate that Ascott Residence Trust (ART) remains their top hospitality REIT pick, given its higher exposure to markets with stronger domestic demand. “We expect ART to deliver stronger overall q-o-q RevPAU in 2Q2021, driven mainly by Europe, and China,” they say. They have an “add” call on ART with a target price of $1.20.
CGS-CIMB also has “add” calls on Far East Hospitality Trust (FEHT) with a target price of 74.5 cents as well as CDL Hospitality Trust (CDLHT) with a target price of $1.43.
Eing and Lock expect CDLHT to deliver better overall RevPAR, similarly driven by Europe, with some staycation demand in Singapore. For FEHT however, despite stronger q-o-q hotel RevPAR, the analysts anticipate lower overall income due weaker performance from the service residence segment.
Nonetheless, they have an overall optimistic outlook for the sector. “With rising vaccination rates globally, we think the recovery going forward would be more sustainable vs. last year,” they surmise.
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The analysts highlight that ART, CDLHT and FEHT are trading below book and expect the market will price in ahead of recovery.
In addition, they point out that FEHT is a close candidate for FTSE EPRA Nareit, which just revised its free float market cap inclusion criteria. "We believe further improvements in share price in tandem with the improving Covid-19 situation will place FEHT in a good position for FTSE EPRA Nareit inclusion," they say.
As at 10am, units in ART, CDLHT and FEHT are trading at $1.06, $1.26 and 59.5 cents.
Photo: Bloomberg
