• Surprisingly weak 2Q RevPAR growth
• Pushing back recovery expectations
• Mid-Tier hotels look to outperform

DPU Recap for the Quarter

2Q18 DPU YoY growth came in at +0.0% for Ascott Residence Trust (ART), +2.9% for CDL Hospitality Trusts (CDLHT), +4.1% for Far East Hospitality Trust (FEHT), and -3.3% for OUE Hospitality Trust (OUEHT). ART recorded a 7% increase in gross profit but DPU growth was affected by the enlarged unit base post the rights issue.

CDLHT’s results were dragged down by NZ and the Maldives, while OUEHT was affected by the lack of income support from Crowne Plaza Changi Airport during the quarter as well as weak retail results. On the other hand, FEHT outperformed operationally, clocking RevPAR growth for its hotel portfolio that was better than its peers.

SG RevPAR Growth Was Generally Disappointing

Recall that after a relatively flat RevPAR performance in 1Q18, we expected RevPAR growth to accelerate for SG hotels as we progressed into the year, allowing for more time since the new supply injection in 4Q17.

2Q growth figures turned out to be generally disappointing. CDLHT’s RevPAR growth came in at -0.9%, affected by the Trump-Kim Summit and late booking patterns, while OUEHT’s Mandarin Orchard Singapore recorded -0.5% growth for similar reasons.

On the other hand, FEHT posted a stellar RevPAR growth of +6.9%. If we strip out Oasia Hotel Downtown’s performance, we believe for the wider portfolio’s growth likely came in at +3% to +4% which is still a performance beat.

Tactical Calls Made

This results season was a busy one for us. We downgraded CDLHT post-results from Hold to Sell on 30 Jul, before upgrading it back to Hold after it dropped 9.1%.

Similarly, we downgraded FEHT pre-results from Buy to Hold on 30 Jul, before upgrading it to Buy after it dropped 8.8%. As of 4 Sept’s close, both CDLHT and FEHT are up ~4% since our upgrades.

We continue to monitor the market for tactical opportunities and will make updates accordingly.

FEHT Remains Top Pick

According to the latest STB numbers, Jul visitor arrivals were up 6.0% YoY while Jul visitor days were up 3.2%. Jan-Jul RevPAR increased 3.2% YoY.

Out of the four hotel tiers, YoY growth for Jul RevPAR was highest for luxury (+3.9%), followed by Mid-Tier (+1.6%), then Upscale (0.0%), and Economy (-0.4%).

Going forward, we continue to expect

1. robust leisure demand,
2. soft corporate demand and
3. continued outperformance of Mid-Tier hotels locally.

We push back our expectations of a strong RevPAR pick-up from 2H18 to 2019, and believe defensive names from other sub-sectors may outperform hospitality.

For switch ideas, refer to our 31 July S-REITs report as well as yesterday’s S-REITs sector update. Within hospitality, FEHT remains our top pick given its

1. 100% SG-based portfolio,
2. the mid-tier positioning of its hotels and
3. the higher chance of operational outperformance given its relative underperformance prior to 2018.

Maintain NEUTRAL on hospitality.

Source: OCBC Research - 5 Sept 2018