Hospitality REITs on the road to recovery: OCBC

Ascott Residence Trust is OCBC’s top hospitality pick.

Hospitality REITs have borne the brunt of the COVID-19 pandemic but are now on the road to recovery, according to OCBC Investment research.

“Singapore started vaccinations in December 2020 and targets to vaccinate the entire population by 3Q 2021. As the vaccination drive kicks in, we have turned more positive on hospitality REITs and expect a gradual recovery ahead,” OCBC said.

However, OCBC also said near-term challenges remain as international travel demand will depend on global COVID-19 trajectory and the government will likely take a measured approach to reopen borders and ease travel restrictions.

“It would also take time for countries to achieve herd immunity. RevPAR/RevPAU and profitability could remain under pressure in H1 2021 but could see a strong recovery in H2 2021, particularly in Q4 2021 due to pent-up demand. We expect a full recovery of RevPAR/RevPAU to pre-Covid-19 levels in 2022 or 2023, assuming the vaccine will be widely available by mid-2021,” the investment research arm of OCBC said.

Meanwhile, Ascott Residence Trust is OCBC’s top hospitality pick due to its defensive and geographically diversified portfolio amidst a still uncertain outlook, higher concentration of assets in the Asia-Pacific region. OCBC said the company is poised to benefit from the earlier recovery given the more stabilised infection rates in the region, coupled with ART’s strong financial position.

Other top hospitality REITS picked by OCBC are CDL Hospitality Trusts and Far East Hospitality Trust.