UOB Kay Hian analyst Jonathan Koh is keeping his “overweight” call on the Singapore REIT (S-REIT) hospitality sub-sector.
“We see a seasonally stronger 2H2023 and continued recovery in 2024,” says Koh.
In his report dated Sept 22, the analyst also notes that the sub-sector is benefitting from the normalisation of leisure and business travel. Moreover, growth is supported by large-scale MICE (or meetings, incentives, conferences and exhibitions) events and enhancements to Singapore’s tourism infrastructure, he says.
Some of the enhancements include the expansion of integrated resorts (IRs) Marina Bay Sands and Resorts World Sentosa, the Mandai nature precinct and the Sentosa-Brani master plan.
In addition, the hospitality sub-sector looks set to benefit from the return of Chinese tourists. China has regained its stature as the largest source market for Singapore since July. In August, tourists from the country grew by 14 times y-o-y to 214,491, reaching 54% of its pre-Covid-19 levels.
“There is room for further recovery as Chinese tourists accounted for a smaller 9.7% of total visitor arrivals during 8M2023 compared with 19.0% in 2019. The volume of Chinese guests is expected to increase during the National Day Golden Week in October, which coincides with the Mid-Autumn Festival,” says Koh.
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The restoration of flights also supports the recovery of the sub-sector, he points out.
“Airlines’ passenger capacity is a leading indicator of the recovery in cross-border travel. The number of flights at Changi Airport increased 41.9% y-o-y to 29,000 in August, reaching 89.6% of pre-Covid-19 levels. Airlines will be adding more flights and destinations, which will further support the recovery of visitor arrivals and the hospitality segment in 2024,” says Koh.
Among the sub-sector, key beneficiaries are Far East Hospitality Trust (FEHT) Q5T and CDL Hospitality Trusts (CDLHT) J85 .
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FEHT is a pure play on the Singaporean hospitality sub-sector and is well-positioned to expand overseas due to its low aggregate leverage of 32.0% as at June 30.
CDLHT will also stand to benefit from the higher occupancies in its six Singapore hotels and increased contributions from Grand Copthorne Waterfront in 2H2023. It also stands to benefit from the continued recovery from Germany and Italy, as well as contributions from the build-to-rent project The Casting in the UK. Contributions from The Casting are expected to start from 2H2024. Of the REIT’s total portfolio, Singapore accounted for 66.3% based on its valuation as at December 2022. The country’s portfolio also accounted for 61.5% of CDLHT’s net property income (NPI) as at 1HFY2023 ended June.
Koh also likes CapitaLand Ascott Trust (CLAS) HMN for its geographical diversification, expansion to longer-stay properties and resilient balance sheet.
In his report, Koh has kept his “buy” calls for all three REITs with target prices of 75 cents for FEHT, $1.48 for CDLHT and $1.35 for CLAS.
For the sub-sector overall, the analyst deems the sub-sector as attractive overall with an FY2024 distribution yield of 6.4% and a low P/NAV of 0.77x.
As at 1.55pm, units in FEHT, CDLHT and CLAS are trading at 62 cents, $1.05 and 97.5 cents respectively.
