SINGAPORE (Oct 9): Singapore-focused hospitality REITs CDL Hospitality Trusts (CDREIT) and Far East Hospitality Trusts (FEHT) are expected to see potential upside to their upcoming 3Q19 results, amid higher visitor arrivals and a resultant improvement in hotels’ earnings.
Recent data released by the Singapore Tourism Board (STB) shows a 3.07% y-o-y increase in arrivals to 1.73 million in August alone. The influx is attributed to the longer holidays in the month, as well as the unrest in Hong Kong, which is said to have diverted tourists here.
Against the backdrop of an ailing economy, the tourism sector seems to be Singapore’s beacon of light.
From January to August this year, visitor arrivals have climbed 1.94% y-o-y to 12.6 million, according to STB.
If the trend persists, economists say that full-year arrival figures for 2019 could rival the 18.5 million set last year.
While a significant number of visitors came from the primary markets of Indonesia and China, the number of arrivals from other countries are also surging to record highs.
Arrivals from Japan, Korea and the Americas, for example, rose 7.6%, 4.6% and 17.2% y-o-y respectively.
The way DBS Group Research analysts Rachel Tan and Derek Tan see it, hotel operating metrics are showing increasing upward momentum.
Hoteliers have seen revenue per available room (RevPAR) spiking 4.9% y-o-y to almost $200 per room. This a substantial jump, following from the 2.3% y-on-y increase in July’s RevPAR.
August’s higher RevPAR comes from better take-ups of Luxury, Mid-tier and Economy rooms, which were up 9.6%, 7% and 6.1% respectively.
“Stronger performance in the Mid-tier/Economy sectors are positive for CDREIT and FEHT,” DBS’ analysts say in a flash note on Wednesday.
“We had originally pencilled in a 2-3% improvement in RevPAR for FY19, above the current YTD August 2019 flattish RevPAR performance of 0.4%,” they add. “However, the hospitality REITs may be able to meet expectations if the strong RevPAR performance continues in 4Q19.”
This may well be likely with STB adopting several diverse approaches to reach out to more travelers, particularly those middle-income visitors from Tier 2 and Tier 3 regions.
Melissa Ow, deputy CEO of STB, says the board is indeed strengthening its appeal to visitors by reaching out more to travelers, personalising their experiences and rejuvenating existing attractions.
Speaking on Wednesday at RHB Securities’ Seminar on Singapore’s Transformation, Ow notes that visitor spending has declined. However, she adds that she is comforted that the number of arrivals have increased nonetheless.
And the hospitality sector is said to be the biggest winner amid the strong tourist arrivals.
DBS’ analysts believe that the potentially stronger earnings will make such REITs more attractive than that of other sectors – especially if the hotel and tourism industry continue to boom till the end of the year.
The research house is maintaining its “buy” call on CDREIT with a target price of $1.80, while keeping its “hold” recommendation on FEHT with a target price of 70 cents.
The analysts note that CDREIT also has potential NAV upside from potential asset disposals.
“Should they decide to dispose of Novotel Liang Court as part of the redevelopment of the overall Liang Court mixed development site, CDREIT could crystallise 20% upside for the property,” they add.
Units in CDREIT closed flat at $1.64 on Wednesday, while units in FEHT closed 1.5 cents higher, or up 2.2%, at 70.5 cents.
