SINGAPORE (Aug 28): In 1Q19 ended March, Singapore saw international visitor arrivals grow 1% to 4.7 million visitors while tourism receipts fell 4.8% y-o-y to $6.5 billion, according to data from the Singapore Tourism Board (STB). Meanwhile, gazetted hotel room revenue grew 4.3% to $1 billion.
Across the different components of tourism receipt, Accommodation, Food & Beverage, Shopping and Sightseeing, Entertainment & Gaming fell by 12%, 7%, 7% and 3% respectively.
In its recently released May tourism statistics, STB says tourist arrivals rose 1.5% y-o-y in the 5M ended May while revenue per available room (RevPAR) remained flat at $185.
In a July 24 report, lead analyst of CGS-CIMB Research Eing Kar Mei says although room supply of continues to be low, demand has also declined likely due to fewer large-scale events this year and weaker corporate travel amid a poorer economic outlook and trade tensions.
“We now see flat to 1% and 2-3% y-o-y growth in 2019F and 2020F industry RevPAR respectively,” says Eing although there is good reason to believe that slower hospitality operating environment has been priced in.
“Hospitality REIT continues to trade at average 12-year mean valuation in terms of dividend yield versus other subsectors which have rerated close to +1 s.d,” adds Eing, “The sector also currently trades at an average of 4.1% dividend yield spread vs 3.9% in 2013-17 when the sector was hit by strong supply which resulted in negative RevPAR.”
On the other hand, hospitality REITs will benefit from a series of government initiatives to develop new tourism attractions and limited supply of hotel rooms in the next three years, says UOB Kay Hian lead analyst Jonathan Koh in a July 19 report.
With visitor arrivals expanding at a 10-year CAGR of 6.2%, consistently surpassing population growth of 1.5%, the importance of the tourism sector can only increase over time, says Koh.
The government has also embarked on a series of initiatives to enhance Singapore’s competitiveness as a tourist destination – including Jewel Changi Airport, expansions at Marina Bay Sands and Resorts World Sentosa, Mandai Nature Precinct and the integrated tourism development at Jurong Lake District. Other plans include Changi Airport’s expansion, and new tourism attractions at Sentosa, Pulau Brani and Great Southern Waterfront.
The URA’s announcement in May pertaining to Airbnb being illegal in Singapore is also positive for the industry as it removes competition from alternative forms of lodging when tourists visit Singapore, adds Koh.
As Singapore becomes more attractive to tourists, Koh says most hospitality REITS are likely to benefit from the efforts, especially with the demand of hotel rooms poised to outpace supply.
“A total of 3,415 hotel rooms will be completed from 2019 to 2022, representing muted growth in supply at a 4-year CAGR of 1.3%. Growth in visitor arrivals is expected to be significantly higher than the increase in supply of hotel rooms, resulting in an uplift to RevPAR over the next three years,” says Koh.
Key beneficiaries include Far East Hospitality Trust (FEHT), CDL Hospitality Trust (CDLHT) and Ascott Residence Trust (ART), according to UOB.
In fact, Koh has ART as one of the top buys of the sector with a target price of $1.54 – as its merger with Ascendas Hospitality Trust is DPU-accretive and set it on course for inclusion in the FTSE EPRA NAREIT Developed Index.
Meanwhile, CGS-CIMB’s Eing also likes FEHT and CDLHT although she says the two are unlikely to deliver strong results in the upcoming quarter. For FEHT, this comes on the back of the ramp-up of Raffles Maldives and renovations at Orchard Hotel while CDLHT is subjected to the high base effect due to the biennial Food & Hotel Asia held in April 2018.
Nevertheless, Eing has CDLHT as its top pick; given it is the bellwether of the hospitality sector. “We expect stronger results in 2H19F as the renovation of Orchard Hotel is completed and Raffles Maldives gradually opens,” she says.
UOB and CGS-CIMB are maintaining their “overweight” calls on the hospitality REITs sector. UOB has target prices of $1.54, $2.06 and 82 cents for ART, CDLHT and FHT respectively while CGS-CIMB has target prices of $1.92 for CDLHT and 71 cents for FHT.
As at 3.14pm, units in CDLHT are trading one cent higher at $1.58 or 23.1 times FY19F earnings while units in FHT are trading at 70 cents or 22.0 times FY19F earnings, according to CGS-CIMB valuations.
