SINGAPORE (Feb 28): Since the start of the year, hospitality trusts are the poorest-performing sector, followed by retail. In fact, on a non-weighted basis, all S-REITs are down year-to-date. The hospitality trusts are of course dragged down by low occupancy as a result of Covid-19.
While Eagle Hospitality Trust is the worst performer year-to-date, it is interesting that in the US, it is increasingly apparent that the supply of select-service hotels is rising while demand has not kept pace with supply. ARA US Hospitality Trust is down just 8% this year following a sharp sell-off on Feb 27, but its annualised yield has compressed because distributions per security (DPS) were more than 12% lower than the forecast in 4QFY2019. If its yield were to expand to match the average yield of the sector, its price could decline. Furthermore, to raise DPS, it may need an acquisition.
Singapore-focused Far East Hospitality Trust is down as well, but the supply-demand situation in Singapore is caused by a temporary collapse in demand. During Oversea-Chinese Banking Corp’s results briefing, CEO Samuel Tsien said he expects the Singapore economy to rebound from the impact of Covid-19 by 4Q2020. If so, Singapore-focused hospitality trusts should similarly rebound.
