Daiwa upgraded Singapore’s hospitality REITs to Positive from Neutral, saying distribution per unit (DPU) yields are now more compelling after recent unit price declines and as the hospitality sector recovery has gained traction.
“We believe hospitality REITs are now attractive for their superior combination of (DPU) yield and growth relative to the other property segments,” it said in a note last week.
“We have high confidence, relative to other property segments, in the recovery of the hotel and serviced-residence sectors, and expect the topline improvement to flow through faster and stronger to DPU growth in the coming years,” it added.
Daiwa said its confidence came from the “severe and prolonged” industry downturn over the past five years, which has created a low revenue base, with revenue per available room, or RevPAR, back at 2009-10 levels. “Low base implies strong recovery potential,” it said.
It also pointed to a “considerably tighter” rise in 2018 hotel room supply, encouraging year-to-date momentum, with RevPAR up 4.4 percent in the first four months of the year and stronger transmission from RevPAR improvement to DPU growth.
It forecast demand increases would outpace supply, and it estimated industry RevPAR would grow 6.1 percent this year, 12 percent next year and 7.2 percent in 2020.
Daiwa upgraded CDL Hospitality Trusts to Outperform from Hold and raised its target to S$1.75 from S$1.74, saying it was “one of the best proxies to the industry recovery.”
It also upgraded Ascott Residence Trust to Outperform from Hold and raised its target to S$1.20 from S$1.17, citing a more compelling valuation after its around 13 percent year-to-date unit price decline and a slightly better outlook for its Singapore, New York and London properties.
But Daiwa noted that ART was only a “marginal play” on a Singapore hospitality recovery as its serviced residences in the city-state make up less than 5 percent of group revenue.