It is no surprise that investors feel pessimistic about the REIT sector.
A combination of high inflation and surging interest rates has dampened the prospects for the popular asset class.
However, there is one sub-segment, hospitality REITs, that displays encouraging prospects.
With the reopening of borders and resumption of air travel, hospitality REITs have enjoyed a much-needed breath of fresh air.
All of them have reported stronger operational metrics and enjoyed a long-awaited year on year increase in their distribution per unit (DPU).
Investors may be wondering if this momentum can continue.
Could there be even more upside for the hospitality REITs for the rest of 2023?
All-round better results
The crop of hospitality REITs listed on the Singapore Exchange have all reported better financial and operating numbers.
For an investor in these REITs, it’s been a long wait to see them post a recovery as the effects of the pandemic wear off.
CapitaLand Ascott REIT (SGX: HMN), Or CLAS, saw its revenue surge by 58% year on year to S$621.2 million for 2022.
Distributable income climbed 38% year on year to S$189.8 million and distribution per stapled security (DPSS) improved by 31% year on year to S$0.0567.
For CLAS’ fiscal 2023’s first quarter (1Q 2023), gross profit rose 59% year on year while revenue per available unit (RevPAU) soared 90% year on year.
CDL Hospitality Trusts (SGX: J85), or CDLHT, saw its net property income (NPI) for 1Q 2023 jump 35% year on year to S$32.7 million.
The average occupancy rate for its Singapore hotels rose from 54.5% for 1Q 2022 to 67.9% for 1Q 2023, with revenue per available room (RevPAR) soaring 86.1% year on year to S$176.
Last year, CDLHT saw its DPSS jump by 31.9% year on year to S$0.0563.
The numbers also looked good for Far East Hospitality Trust (SGX: Q5T), or FEHT.
Its DPSS increased by 24.3% year on year to S$0.0327 and the strong showing has carried on into 1Q 2023.
FEHT saw gross revenue rise 20.1% year on year to S$25.2 million for 1Q 2023 with NPI climbing 24.4% year on year to S$23.7 million.
Distributable income rose 24.1% year on year to S$18.2 million.
The average occupancy rose 14.2 percentage points to 81.9% in 1Q 2023 with RevPAR more than doubling year on year to S$135 over the same period.
Tourism to return to pre-pandemic levels
The big question on investors’ lips will naturally be – can these hospitality REITs continue to pull their weight as the year drags on?
There is good evidence to show that this trend can continue.
Singapore’s tourism arrivals look set to recover back to pre-pandemic levels by 2024, after March 2023 alone saw one million tourists visiting the island.
For 1Q 2023, Singapore welcomed 2.91 million visitors, and should these numbers continue to rise, experts are projecting that tourism numbers will come in between 12 to 14 million for 2023, greatly surpassing the 6.31 million recorded last year.
However, this was still below the record 19.1 million back in 2019, suggesting that there is further upside to these numbers.
Other than Singapore, countries such as Thailand and Japan are also focused on boosting tourism.
Both countries have plans to build their own integrated resorts to act as tourist magnets.
If these plans come to fruition, it could make the entire Asian region a more attractive destination for tourists, who can visit multiple countries when planning their tours.
More attractions and a re-branding exercise
Singapore is not taking these moves lying down.
It is offering up upgraded attractions such as the newly-opened Bird Paradise as a reason to visit.
Disney (NYSE: DIS) had also announced its first Southeast-Asian cruise that will depart from Singapore.
Let’s not forget that both Singapore IRs have committed S$9 billion to upgrade their non-gaming facilities.
Genting Singapore’s (SGX: G13) Resorts World Sentosa will expand its Universal Studios Singapore theme park and build a new Oceanarium by 2024.
Marina Bay Sands, a unit of Las Vegas Sands (NYSE: LVS), is slated to build a fourth tower along with a 15,000-seat entertainment area and 1,000 more hotel rooms.
Singapore Tourism Board will also launch a refreshed marketing campaign soon to target more travellers.
Get Smart: A great source of dividends
The hospitality REITs have much to look forward to as these exciting plans kick into action.
Investors in these REITs look set to enjoy higher dividends from them as tourism is projected to continue its recovery.
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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Disclosure: Royston Yang does not own shares in any of the companies mentioned.
