SINGAPORE (Apr 16): OCBC Investment Research has downgraded its recommendations for both Ascott Residence Trust (ART) and Far East Hospitality Trust (FEHT) to “hold” from “buy”, after a strong rally so far this year for the two hospitality REITs.

“ART and FEHT have inched up toward our fair value,” says lead analyst Deborah Ong in a Monday report. “As our fair values for each remain the same, we are downgrading both ART and FEHT today.”

The brokerage has a fair value estimate of $1.25 on ART and a fair value estimate of 68 cents on FEHT.

OCBC had upgraded ART and FEHT to “buy” calls on Jan 10, 2019, and Aug 13, 2018, respectively. Since then, ART has posted total returns of 12.8% while FEHT has posted total returns of 14.2%.

See: Ascott REIT cut to 'hold' by OCBC after recent rally

At the same time, OCBC is downgrading the Singapore hospitality sector to “neutral” from “overweight”.

According to data from Singapore Tourism Board (STB), upscale and mid-tier hotels have seen poor revenue per available room (RevPAR) performance for the first two months of the year.

“Upscale hotels posted -3.8% and -6.5% y-o-y RevPAR growth for Jan and Feb respectively, while mid-tier hotels posted 1.0% and -4.3% y-o-y RevPAR growth,” Ong says. “Our channel checks have revealed that March was also a subdued month for the industry.”

However, the analyst brushes off worries over the RevPAR situation.

“Given that the supply situation remains favourable, we believe the softness in RevPAR has more to do with the absence of events that were held last year,” she says. “We continue to see a two-year runway for RevPARs to improve given the benign supply outlook.”

As at 3.30pm, units in Ascott Residence Trust are trading 0.8% higher at $1.21 and units in Far East Hospitality Trust are trading 0.8% higher at 67.5 cents.