July 9, 2019

Singapore registered 1.48m tourist arrivals in May 19 (+0.9% yoy) largely due to a 5.3% yoy rise in tourists from Greater China and partially offset by a 7.5% yoy decline in tourists from South Asia. MTD May 19 tourist arrivals grew 1.49% yoy to 7.77m, slightly below our full-year expectation of 19.1m arrivals (+3% yoy). The largest group of arrivals MTD May 19 continued to be from Southeast Asia (33% of overall tourist arrivals), which posted 2.57m arrivals (-1% MTD, +0.04% yoy in May 2019). On a more positive note, the average length of stay in MTD May 19 was a slightly longer 3.35 nights versus 3.32 days during the same period last year.

On the hotel front, while there was a 0.6% yoy increase in average room rates for MTD May 19, this was offset by a 0.5% decline in average occupancy to 84.7% which combined to give flat MTD May 19 RevPAR of S$185. Upscale, mid-tier and economy hotels experienced 2.9%/0.2%/0.8% yoy declines in MTD May 19 RevPAR respectively while luxury hotels bucked this trend with a 3.3% yoy RevPAR growth. The flat RevPAR MTD May 19 was below our and market expectations of 3-5% growth.

Looking ahead, key events such as the Grand Prix in Sep and the International Champions Cup Singapore football championship scheduled to take place in 2H should attract tourist arrivals. However, (i) the absence of large scale events such as Food & Hotel Asia 2018 and events related to Singapore’s ASEAN chairmanship which were present last year as well as (ii) weaker corporate travel due to ongoing trade tensions and slower economic growth would dampen demand for short-stay accommodation. We expect weak 2Q results given tepid tourist arrivals which will drag RevPAR growth despite the low hotel supply.

We remain Overweight on the overall REIT sector. We prefer SREITs with attractive valuations as well as the REITs with stock-specific catalysts. Our top picks are SUN, MCT and KDCREIT. Key sector risks include lower-than-expected rate cuts and slow macro outlook.

Ascott Residence Trust

Serviced residences mainly cater for longer-stay customers. The weaker tourist arrivals would have lesser impact on ART than other hotel REITs. Singapore operation contributed ~12% of ART’s total gross profit in FY18. Maintain HOLD with TP S$1.22. Ascott Residence Trust closed at: S$1.30

CDL Hospitality Trust

Singapore operation accounted for ~60% of CDLHT’s NPI in FY18. Hence, weaker tourist arrivals would have a more material impact on its earnings. The reopening of Raffles Maldives would help to offset some of the impact. Maintain ADD with TP S$1.97. CDL Hospitality Trust: S$9.47

Far East Hospitality Trust

In FY18, 69% of FEHT’s revenue was derived from its hotels in Singapore. We expect weaker tourist arrivals to have lesser impact on its serviced residence operation (~12% of revenue in FY18). The rest of the revenue is generated by its commercial business. Maintain ADD with TP S$0.76. Far East Hospitality Trust: S$0.68 – CGS CIMB