It’s been a long road, but the light is finally appearing at the end of the dark tunnel for hospitality REITs.
Singapore has announced the implementation of a vaccinated travel framework (VTF) on 31 March to replace the previous vaccinated travel lanes (VTL) scheme.
The VTF allows travellers to Singapore to just take a pre-departure test two days before arriving, and will not need to take on-arrival tests or serve quarantine.
The simplified procedures and less onerous requirements mean that more tourists should be flowing into Singapore in the coming months.
The unit price for CDL Hospitality Trusts (SGX: J85), or CDLHT, has jumped 15.7% in the last month to hit S$1.33, in a signal that investors are seeing better prospects for the hospitality sector.
Hospitality REITs have been shunned in the past two years as the pandemic swept across the globe.
Is it time to jump back in?
Easing of safe management measures
Aside from the VTF, Singapore also eased a raft of other safe management measures (SMMs), effective from 29 March.
Group sizes were doubled from five to 10 and included dine-in customers at food and beverage establishments.
At these establishments, live performances can also resume, and the sale and consumption alcohol of alcohol will be permitted past 10:30 p.m.
In addition, larger-scale social gatherings such as gala dinners, corporate dinner-and-dance events, and birthday celebrations were allowed to resume as well.
These moves will no doubt come as a breath of fresh air to the hotel industry.
More people will visit hotels to dine in at their restaurants, while bookings for special events such as birthdays or weddings, as well as corporate events, should start filling up.
With increased patronage, hospitality REITs should also see their occupancy levels rising.
Average daily rates and revenue per available room (RevPAR) should also start trending up over time.
Other hospitality REITs benefitting
Other hospitality REITs have also posted gains.
Frasers Hospitality Trust (SGX: ACV), or FHT, saw its unit price surge 36% in the last month.
The rise was partly due to speculation that the REIT may be taken private.
The owner and operator of 15 hospitality assets across nine cities in Asia, Australia and Europe had also reported easing restrictions across its key markets.
Meanwhile, Far East Hospitality Trust (SGX: Q5T), or FEHT, which owns 13 properties in Singapore, saw its unit price increase by close to 10% in one month.
With all its hotels located within Singapore, FEHT stands to benefit immensely from the above-mentioned easing of SMMs.
However, the largest of the hospitality REITs, Ascott Residence Trust (SGX: HMN), or ART, only saw its unit price inch up 4.7% over the same period.
Distributions may recover
These hospitality REITs are not standing still, though, and have been taking action to improve their asset portfolios and enhance distributions to unitholders.
CDLHT had announced the acquisition of Hotel Brooklyn in the UK for around S$41.5 million at a net property income yield of 7.4%.
This purchase should increase the trusts’ distribution per stapled security (DPSS) to S$0.0432 from S$0.0427 for its fiscal 2021 (FY2021).
Meanwhile, FEHT announced the divestment of Central Square at a 70% to 80% premium over its purchase price to unlock value for unitholders.
Elsewhere, ART has been busy snapping up student accommodation properties and rental housing properties as part of its strategy to acquire longer-stay properties.
Last December, the trust acquired four student accommodation properties in the US for US$213 million, doubling its US presence to eight properties.
And just last month, ART announced a S$125 million acquisition of five properties in Japan comprising four rental housing properties and one student accommodation property.
These moves, together with the general easing of conditions around the world that will permit travellers to roam more freely, should provide a further boost to DPSS and also benefit the trusts’ operating and financial metrics.
Get Smart: Further easing expected
Singapore is mulling over the next steps of its reopening, as Health Minister Ong Ye Kung keeps a close watch on hospital capacity and the number of severe cases here.
There could be further easing down the road should the situation improve, and hospitality REITs will receive a further shot in the arm should this happen.
It seems like the skies have indeed cleared up for the hospitality REIT sector.
Barring an unexpectedly sharp rise in cases or the emergence of a new, dangerous COVID-19 variant, economic conditions should improve steadily hereon.
Investors who are confident that the worst is over may consider adding some of these REITs to their investment watchlists.
Not sure which REIT to put your money in? Use our 7-step REIT checklist to find one that fits into your retirement plan. Checklist is inside our latest FREE report “Singapore REITs Retirement Plan”. Click here to download it now.
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Disclaimer: Royston Yang does not own shares in any of the companies mentioned.
