The Covid-19 pandemic has heavily affected the hospitality industry worldwide, and Singapore is no exception. The hospitality REITs continued to bear the brunt of the pandemic as their 1H20 results were rather lacklustre and came in below OCBC Investment Research’s expectations.
This was due to a weaker-than-expected operating environment and retention of distributable income.
In a September 2 report, analyst Chu Peng says, “Overall, we observe that Serviced Residences (SR) were more resilient as compared to Hotels due to SR’s longer pre-existing leases and lease extensions from project groups and corporate business; countries catering to transient travellers were more impacted than those catering to long-stay travellers; and properties which sought alternative sources of revenue were less impacted.”
On the bright side, contracts from the government is likely to last through 3Q, which will continue to provide some buffer to revenue loss for the local hotels. But as the number of Covid-19 cases stabilised, there could be lesser demand from the government’s bulk-bookings.
“We believe that the outlook remains challenging but we could see a slow recovery in 2H20 for the hospitality sector as more countries exit from lockdowns, and with the reopening of temporarily closed properties, the implementation of ‘travel bubbles’ as well as the government’s support on domestic tourism, barring the risks of subsequent waves of infections,” adds Chu.
The analyst likes Ascott Residence Trust (ART) for its defensive and geographically diversified portfolio amid a still uncertain outlook, coupled with its strong financial position. ART remain to be Chu’s top hospitality pick, as he has a “buy” call on the stock with a fair value estimate of $1.03.
Furthermore, ART was recently included in the FTSE EPRA Nareit Global Developed Index, which the analyst believes will help further raise ART’s profile as the proxy hospitality trust in Asia Pacific and increase ART’s trading liquidity.
In its latest 1H20 results, ART saw gross profit declined 28% y-o-y to $88.6 million, mainly due to lower contributions across its portfolio and divestment of Ascott Raffles Place Singapore and Somerset West Lake Hanoi. ART still managed to retain $5 million or 15% of income available for distribution on potential rental deferment or waivers to support tenants. The impact on DPU, however, was offset by a $5 million top-up from capital distributions.
Separately, CDL Hospitality Trust’s (CDLHT) 1H20 NPI was down 56% y-o-y to $29.7 million. The trust also decided not to distribute any capital distributions in 1H20.
Meanwhile, Far East Hospitality Trust (FEHT) saw 1H20 NPI declined 23.1% to $38.6 million, pulled down by lower contributions across its portfolio amid Covid-19. But it managed to retain $5.3 million of distributable income for potential rental waivers for its commercial tenants.
As such, all three hospitality REITs reported double-digit declines in DPU. 1H20 DPU came in at -69% y-o-y for ART, -64% y-o-y for CDLHT and -43% y-o-y for FEHT.
As at 5.00pm, units in ART, CDLHT and FEHT are trading at 89 cents, $1.10 and 55 cents, respectively.
