Travel appetite expected to fuel RevPAR recovery

Samantha Chiew
Samantha Chiew8/18/2022 03:01 PM GMT+08  • 4 min read
Travel appetite expected to fuel RevPAR recovery
Thanks to the resumption of tourism, the hospitality REITs are seeing a boom. Photo: The Ascott
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Singapore has opened up its borders to welcome foreign tourists since April. This big move from the Singapore government has no doubt impacted — in a positive way — the sectors that heavily rely on tourism, especially the aviation and hospitality sectors.

While the aviation players are seeing higher passenger traffic, the hotel guys are experiencing a strong recovery in higher revenue per average room (RevPAR).

According to DBS Group Research, among the Singapore REITs (S-REITs), the hospitality REITs are the ones seeing the largest recovery growth in the market, with some markets seeing a doubling of RevPAR, as travellers seek to satisfy their pent-up demand for travelling.

Additionally, with travellers more willing to spend time and money for a more meaningful vacation, the hotels are seeing longer average stays, as well as guests who are more willing to spend on higher room rates. All of these factors contribute to improving RevPAR for hospitality REITs.

“We sense optimism that hoteliers continue to see pricing power heading into 2H2022, with most expecting to continue to hike room rates while also seeing occupancy levels fill up,” write DBS analysts Geraldine Wong and Derek Tan in their Aug 2 report.

They note that this results season in 1H2022 saw the Singapore hospitality REITs posting the sharpest q-o-q RevPAR recovery since the onset of the pandemic, surpassing their recovery trajectory that estimates recovery to reach about 70% of pre-pandemic levels in FY2022.

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Performance was led by a global recovery in both occupancy and room rates, except for Japan and China, both of which have yet to open up their borders to welcome foreign tourists.

Markets that have seen a three to fourfold surge in RevPAR from a low base include large domestic markets like the UK and US, which were building on a strong summer travel season, write the analysts.

Domestically, Singapore reported a record six-year-high RevPAR in June, just a couple of months after borders were relaxed in April. The research house’s top picks within the sector in Singapore are Ascott Residence Trust (ART) and CDL Hospitality Trusts (CDLHT).

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ART’s portfolio RevPAR has close to doubled y-o-y in the latest 2QFY2022, while CDLHT’s Singapore hotels are seeing RevPAR pricing matching and even surging beyond 2019 levels.

DBS has a “buy” call on both the trusts with target prices of $1.40 for ART and $1.55 for CDLHT. It also has a “buy” on Far East Hospitality Trust with a target price of 78 cents.

Additionally, ART on Aug 15 announced that it will be acquiring a $318 million portfolio of nine serviced residences, rental housing and student accommodation properties in France, Japan, Vietnam, the US and Australia from its sponsor. Maybank Securities analyst Chua Su Tye is upbeat on this news and is keeping a “buy” call on the trust with a target price of $1.40.

“The assets are well-placed and should help ART gain a further foothold in its core markets. We see upside on yields, underpinned by recovering RevPAU [higher revenue per average unit]; occupancies for the serviced residences (currently at 80%–95%) are at or above pre-Covid levels, and we see room for this to improve as average daily rates rise on the back of demand recovery,” says Chua.

DBS too sees this move as accretive for ART and believes that this step will bring it closer to medium-term target exposure within the long-stay lodging segment.

“ART has benefited from their first mover advantage into this longer-stay lodging segment with potentially higher and more acquisition hurdles this year as opposed to the past year, alongside higher funding cost,” says DBS.

“The decision to bring in equity fundraising instead of further stretching leverage came to us as potentially further acquisitions lined up for this year, which we think will be structured similarly. We see ART’s placement as potentially one of the few to take place this year within the hospitality space and time amid the recovery cycle,” it adds.

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Overall, DBS is upbeat about the recovery of the hospitality sector. “We believe this is just the start of a meaningful upturn in demand as RevPAR re-rates to a more normalised basis. Higher visibility of room rates, alongside a longer length of hotel stays and strong forward bookings, has placed hoteliers in a more confident position and RevPAR could surge beyond June peaks as we approach 2022 year-end,” writes the DBS analysts.

“The green shoots we await in 2H2022 will be the reopening of Japan, which is still seeing depressed room rates at about 30% of its normalised basis, and further relaxation from China’s reopening,” they add.

Furthermore, with a slew of MICE (meetings, incentive travel, conferences and exhibitions) events coming up, tourism in Singapore is expected to increase, driving the performance of the hospitality REITs higher.

Photo: The Ascott

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