• Minimum stay down to 3 mths
• Longer term impact on SG SRs
• 5.3% to 6.3% FY17 yields

URA Reduces Minimum Stay Duration to 3 Months

URA announced last Friday that the minimum stay duration for private residential properties has been lowered from six months to three months, with immediate effect. Stay durations of less than three consecutive months continue to be disallowed. This legislation is likely to be most relevant for the serviced residences (SRs), though we expect the impact to be small especially in the short term. 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. As such, we expect the immediate impact of the new regulation on SRs to be negligible for now.

Watch Out for Longer Term Impact

However, in the longer term (three to five years and beyond), we expect a greater shift away from serviced residences as home owners adjust to the new regulations and companies continue to give their employees more flexibility in choosing their own housing arrangements. Out of the REITs under our coverage, both Far East Hospitality Trust (FEHT) and Ascott Residence Trust (ART) have SRs in Singapore.

The average length of stay at ART’s Singapore SRs is three months, and we believe that FEHT’s SRs are similar in this regard. With the change in regulation, it is likely these Singapore SR portfolios will 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.

Ex-rights Trading Has Started for CDLHT

According to our forward estimates, hospitality REITs under our coverage are trading at 5.3% to 6.3% FY17F dividend yield. Within the hospitality sector, our top pick remains OUEHT [BUY; FV: S$0.75]. Yesterday was the first day of trading for CDL Hospitality Trusts’ (CDLHT) ex-rights units. Given yesterday’s unit price of S$1.62, we maintain HOLD on CDLHT [HOLD; FV: S$1.48]. Do refer to the latest S-REITs Tracker for a summary of our individual REIT ratings and useful metrics across the various REIT subsectors. Given the recent compression in yields, we maintain NEUTRAL on the hospitality sector.

Source: OCBC Research - 4 Jul 2017