As expected, hospitality REITs will take more time to recover, perhaps only in 2024, say CGS-CIMB Research analysts Eing Kar Mei and Lock Mun Yee in an October 1 note. The analysts are maintaining their “overweight” call on S-REITs, highlighting their “add” calls on Ascott Residence Trust with a target price of $1.05, CDL Hospitality Trust at $1.16 and Far East Hospitality Trust at 62.9 cents. 

“We had expected a recovery in tourist arrivals towards the end of 2020 but with Singapore only allowing tourists from New Zealand, Brunei, Australia and Vietnam so far, we think our FY2021-2022F Singapore RevPAR (revenue per available room) for the REITs are overly bullish,” write Eing and Lock.

“Hence, we cut our FY21-22 Singapore RevPAR assumptions by 23-33% for CDLHT and FEHT as we tone down our ADR (average daily rate) forecasts to assume a higher occupancy from alternative business which commands lower room rates and lower occupancy from tourists which commands higher rates. We believe the sector will see a slow recovery and assume a full recovery only in 2024, i.e. in line with STB’s expectations of a 3 - 5 year recovery journey.”

REITs’ hotels’ Singapore occupancy generally remained high at above 90% in 3Q2020, note Eing and Lock, thanks to alternative businesses (mainly government contracts and foreign workers), although we understand that rates and demand from alternative businesses were weaker compared to during the circuit breaker. 

Singapore staycation demand is encouraging, with weekends achieving occupancy up to the permitted capacity. Overseas, occupancy has been improving on a mom basis, especially in Europe. Industry-wise, August RevPAR declined at a smaller quantum of 65.5% y-o-y compared to July’s decline of 72.1% y-o-y, driven by higher average room rate which offset the lower occupancy. 

However, the road to recovery still looks long. Given the well-controlled Covid-19 situation in Singapore and that Malaysia is looking to fully open the border with Singapore in January 2021, Eing and Lock expect demand from alternative businesses to gradually decline going forward. 

Occupancy rates overseas could also taper off due to the resurgence of Covid-19 cases recently. “While Financial Times reported that a Covid-19 vaccine may become available in mid-2021 at the latest, we think there will be challenges in making the vaccine widely available globally due to manufacturing capacity constraints and uneven purchasing power for various countries.”

As at 2.01pm, units in Ascott Trust are trading flat at 89 cents, while CDL Hospitality Trust traded 1 cent lower, or 0.94% down, at $1.05 and Far East Hospitality Trust traded flat at 54.5 cents.