Hospitality sector face slow recovery in H2: analyst

The rise of staycation and travel bubbles could provide support to the sector.

Whilst the outlook remains challenging overall, Singapore’s hospitality REITs could expect to see slow recovery in the second half of the year as markets slowly reopen, reports OCBC Investment Research.

First half results for three hospitality REITs under OCBC’s coverage—Ascott Residence Trust, Far East Hospitality Trust, and CDL Hospitality Trust—came below expectations. RevPAR in the three REITs plummeted 49%, 43%, and 56%, respectively, in H1 on the back of a weaker-than-expected operating environment and retention of distributable income.

The second half of the year holds promise for the hospitality sector, as more countries exit from lockdowns, and with the reopening of temporarily closed properties, noted OCBC.

Furthermore, the implementation of “travel bubbles” as well as the government’s support on domestic tourism could also provide a boost to the sector.

On July 3, Singapore authorities announced that hotels may apply to reopen for staycation bookings which could provide a boost to hospitality REITs. Demand for staycation is healthy due to pent-up demand from local travellers and ADR remains largely comparable to pre-COVID-19 levels, noted OCBC Investment Research analyst Peng Chu.

However, don’t expect staycation to buoy performance—it remains largely a weekend business and is unlikely to make up for losses in weekday occupancies or compensate for the income shortfall from COVID-19, added Chu.

Amongst REITs covered, OCBC Investment Research identified Ascott Residence Trust as the likely to perform best, on the back of its defensive and geographically diversified portfolio which provides a buffer amidst a still uncertain outlook, coupled with its strong financial position.

Overall, serviced residences (SR) were more resilient compared to hotels due to SR’s longer pre-existing leases and lease extensions from project groups and corporate business, the report said.