UOB Kay Hian sees &lsquo seasonally stronger&rsquo 2H2023 and &lsquo continued recovery&rsquo in 2024 for hospitality REITs

&ldquo We see a seasonally stronger 2H2023 and continued recovery in 2024,&rdquo 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&rsquo s tourism infrastructure, he says.

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.

&ldquo 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,&rdquo says Koh.

The restoration of flights also supports the recovery of the sub-sector, he points out.

&ldquo Airlines&rsquo 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,&rdquo says Koh.

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&rsquo s total portfolio, Singapore accounted for 66.3% based on its valuation as at December 2022. The country&rsquo s portfolio also accounted for 61.5% of CDLHT&rsquo s net property income (NPI) as at 1HFY2023 ended June.

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.

 

RHB Research upgraded its call on CDL Hospitality Trusts : J85 +1.94% (CDLHT) to &ldquo buy&rdquo from &ldquo neutral&rdquo with an unchanged target price of S$1.25 after stapled securities of the real estate investment trust (Reit) fell 12 per cent over the last month.

 

Analyst Vijay Natarajan said the decline in CDLHT &ndash which is a stapled group comprising CDL Hospitality Reit and CDL Hospitality Business Trust &ndash came amid a broader sell-down in the hospitality sector due to concerns about higher interest rates.

 

&ldquo We believe the weakness presents a buying opportunity for investors looking to re-enter the Singapore hospitality sector, with Chinese visitor arrivals showing signs of a rebound,&rdquo said the analyst on Tuesday (Sep 5).

 

While Natarajan acknowledged that the group is &ldquo susceptible to high interest rates&rdquo due to its low fixed-debt position, he said current levels of the stapled securities have priced this risk in as the stapled group currently trades at an estimated 30 per cent discount to book value.

 

The analyst said that the stapled group is also &ldquo poised to ride the (tourism) recovery&rdquo due to its &ldquo high quality portfolio of upscale hotels&rdquo in Singapore, which he estimated to contribute to about 62 per cent of total net property income.

 

This was in light of the &ldquo rosier outlook&rdquo for the hospitality sector with the return of Chinese tourists.

 

Natarajan added that CDLHT&rsquo s gearing position is &ldquo comfortable&rdquo at 37.9 per cent and that the brokerage did not see an &ldquo imminent need for equity fundraising&rdquo .

 

&ldquo Overall, we expect a slight increase in its Singapore hotel portfolio value upon the year-end revaluation offsetting the foreign exchange impact,&rdquo he said.

 

On the stapled group&rsquo s commitment to forward purchase the upcoming Moxy hotel in Singapore, Natarajan said the hotel &ndash which is expected to be completed by 2025 &ndash &ldquo will be a good addition amid scarce market opportunities to acquire locally&rdquo .

 

The analyst also revised the distribution per unit for the Reit by -4 per cent to 0 per cent for FY2023 to FY2025, after fine-tuning the revenue per available room and interest cost assumptions.

 

On CDLHTs&rsquo overseas portfolio, Natarajan said that the stapled group&rsquo s European portfolio continues to do well with a positive outlook for its hotels in the United Kingdom, Germany and Italy.

 

However, he expected the performances of the group&rsquo s segments in the Maldives and New Zealand to remain weak on the back of increased supply as well as cost pressures.