Thursday, March 1, 2018

Is 2018 The Year To Invest In Hospitality REITs?

It is expected that the hospitality sector will recover in 2018 due to the lower supply of hotels in Singapore. Elsewhere in the world, the better economic outlook is also expected to improve tourism receipts which will benefit the hospitality sector also.

The question is, on the back of all these positive sentiments, is there still opportunities to invest in the hospitality sector? I am always weary when we see a lot of good news for a particular sector because most of the time, the stocks would have already run up. This is the case for the hospitality sector currently where many brokerage houses and analyst are very bullish on this sector. 

Yes, many stocks in the hospitality sector have already run up since last year. The stocks which are listed in Singapore and in the hospitality sector are as follow:
  1. Ascendas Hospitality Trust
  2. CDL Hospitality Trust
  3. Far East Hospitality Trust
  4. Frasers Hospitality Trust
  5. OUE Hospitality Trust
I have invested in all the above hospitality trust except for OUE Htrust which I am not vested in. I have recently bought into Frasers Htrust as it is at fair value with stable and relatively high DPU at about 6.4%. Its hotels are also located strategically around the world so I believe they will benefit from the improved tourism moving forward. In its latest 1Q FY18 financial results, Frasers Htrust reported higher revenue for all countries except for its UK hotels.

Another opportunity to invest in the hospitality sector is Far East Htrust. This is a stock I invested back in May last year at a lower price. But, at current price, I still believe it still has some good value for those who want to invest in it. They have recently acquired Oasia Hotel Downtown which is strategically located in the heart of CBD just beside Tanjong Pagar MRT. This would have boosted DPU by 4% for 9MFY2017 results on a pro forma basis. Oasia Hotel has good reviews on Tripadvisor as well as and its a choice of stay for travellers coming to Singapore. We should expect RevPAR to improve with the addition of this new hotel into their portfolio for FY2018 when its approved by the shareholders in March 2018.

However, we have to note that their latest financial results didn't really show much improvements for their current portfolio. Their average occupancy for the hotel portfolio is only 85.4% and RevPAR declined 2.4% year on year to $132. For the serviced residences, average occupancy is only at 78.2% and RevPAU decreased 5.5% to $166. I do not know clearly if its occupancy or RevPAR will improve in 2018 even though the general sentiment is that hotels should do well in 2018 onwards.

Far East Htrust still gives good dividends at around 5.45% at the price of $0.715. It is trading at 0.8x PB which is still at a discount to its book value. All the other stocks in the hospitality sector are trading at much higher book value with CDL Htrust at 1.09x PB, Ascendas Htrust at 0.99x PB and OUE Htrust at 1.09x PB. If some of these hospitality stocks continue their decline due to the volatility of the market, I will consider accumulating some along the way.

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