DBS Group Research is continuing to remain “constructive” on the hospitality Singapore REITs (S-REITs) sub-sector for 2022.
“We believe that the prospects of a revenue per average room (RevPAR)-led recovery in distributions per unit or DPUs (+30% in FY2022) will likely outweigh worries about higher interest costs impacting the sector,” the team writes.
In addition, the hospitality S-REIT sub-sector has seen one of its best days in the year on the back of positive news pertaining to Singapore’s re-opening.
As at the team’s note dated April 14, CDL Hospitality Trusts (CDLHT) saw its shares increase by 4%, while shares in Far East Hospitality Trust (FEHT) and Frasers Hospitality Trust (FHT) rose by 6.3% and 7.6% respectively.
Shares in Ascott Residence Trust (ART) remained flat.
“The strong rally in prices built on the positive momentum seen in March where the hospitality S-REITs posted a 14% rise (m-o-m) ahead of the 5% rise in the S-REIT index. On a year-to-date (y-t-d) basis, the hospitality S-REITs are up 17%,” notes the DBS team.
In its March 25 report, the team had already highlighted that hospitality S-REITs are poised for a multi-year rebound in share price driven by critical factors including the strong corelation between RevPAR and higher P/NAV, as well as a write-back in Covid-related write-offs in NAVs (especially for SG hotels).
The hospitality S-REITs subsector is still currently trading at attractive valuations, says the team.
“The recent news of FHT undertaking a strategic review with a possibility of a privatisation in place has probably highlighted the cheap valuations that the hospitality S-REITs trade at,” writes the team. “Even with the re-rating in prices, the hospitality S-REITs still trade at close to -1 standard deviation of its historical P/NAV ratio”.
Units in CDLHT, FEHT, FHT and ART closed at $1.30, 67.5 cents, 63 cents and $1.11 respectively on April 14.
