SINGAPORE (July 4): OCBC continues to remain “neutral” on Singapore’s hospitality sector given the recent compression in yields, while highlighting OUE Hospitality Trust (OUEHT) as its top and only “buy” pick with a fair value estimate of 75 cents.

This comes after the Urban Redevelopment Authority (URA) last Friday passed a new legislation that reduces the minimum stay duration for private residential properties to three months from six months previously, with immediate effect.

In a Tuesday report, lead analyst Deborah Ong notes that the move is likely to affect serviced residences (SRs), but she expects the immediate impact to be negligible for now.

“According to statistics disclosed by Airbnb to the media, room nights spent at Airbnb rooms made up around ~1% to 2% of the total stock of hotel room nights in 2016. Considering that Airbnb is the main home-sharing platform for all stays less than six months, we estimate that the supply of home owners eager and ready to rent out for three months at a time is relatively small,” adds Ong.

Out of the REITs under the OCBC’s coverage, Far East Hospitality Trust (FEHT) and Ascott Residence Trust (ART) both have SRs in Singapore. Both trusts have been rated “hold” with fair values of $1.01 and 60 cents respectively.

As the average length of stay at ART’s Singapore SRs is three months, Ong believes the numbers for FEHT are similar in this regard – and also anticipates these two SR portfolios to face increased competition from private residences offering short-term rental further down the road.

“The question is whether this medium-term supply headwind will be accompanied by a strong recovery in corporate demand,” says Ong.

The analyst nonetheless expects a greater shift away from serviced residences in the longer term, specifically over the next 3-5 years, as home owners adjust to the new regulations and continue to give their employees more flexibility in their choices of housing arrangements.

With CDL Hospitality Trusts (CDLHT) having commenced ex-rights trading yesterday and given its last unit closing price of $1.62, the research house maintains “hold” on the trust with a $1.48 fair value.  

As at 11.34pm, units of OUEHT, FEHT, ART and CDLHT are trading at 76 cents, 66 cents, $1.16 and $1.60 respectively.