Earnings of Hospitality SREITs are expected to stabilise in 2016 due to higher visitor arrivals and income from new assets, according to Fitch Ratings in a Tuesday report.
Tourist arrivals increased 14% y-o-y in 4M16 on the back of a resurgence in arrivals from China and Indonesia. If this trend persists, it could “offset the potential earnings pressure from an estimated 11% increase in the supply of hotel rooms in Singapore between 2016-2018, says Hasira De Silva, analyst for the report.
On the home front, the rating agency expects Ascott Residence Trust (ART) to outperform the sector in 2016 due to “substantial acquisitions and refurbishments” amounting to $380 million made in 2015. OUE Hospitality Trust (OUE H-Trust) and CDL Hospitality Trusts (CDLHT) which spent a combined $425 million in 2015, should also see an increase in earnings, says De Silva.
SREITs with overseas exposure are expected deliver mixed results in 2H16. Trusts with assets in Sydney and Melbourne like Ascendas Hospitality REIT (AHREIT) are expected to fare well due to a continued asset crunch. On the other hand, CDLHT, with its exposure to properties in Brisbane and Perth, is expected to remain weak due to “more supply in the pipeline and weak mining-sector spending”, the report adds. Downside risks to CDLHT’s earnings are however, limited due to the fixed nature of income accruing from CDLHT’s Australian properties.
REITs with exposure to China continue to deliver growth in RevPAR. This is expected to persist into 2H16.
Moving forward, weaker economic data coming out of Singapore and Australia may lead to downside risks for Hospitality SREITs. In light of the upcoming supply of hotel rooms to be released into the market, any reversal of the positive trend evidenced in 1H16 could be detrimental to the sector.
As at 1Q16, sector leverage is healthy at 36%. About three quarters of the sector’s debts is at fixed rates, thus insulating it from interest rate uncertainties.
As at 9.33am, ART is down 1.8% at $1.105, OUE H-Trust is flat at 67 cents, CDLHT is down 1.7% at $1.425 and AHREIT is up 0.8% at 66.5 cents.
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Tourist arrivals increased 14% y-o-y in 4M16 on the back of a resurgence in arrivals from China and Indonesia. If this trend persists, it could “offset the potential earnings pressure from an estimated 11% increase in the supply of hotel rooms in Singapore between 2016-2018, says Hasira De Silva, analyst for the report.
On the home front, the rating agency expects Ascott Residence Trust (ART) to outperform the sector in 2016 due to “substantial acquisitions and refurbishments” amounting to $380 million made in 2015. OUE Hospitality Trust (OUE H-Trust) and CDL Hospitality Trusts (CDLHT) which spent a combined $425 million in 2015, should also see an increase in earnings, says De Silva.
SREITs with overseas exposure are expected deliver mixed results in 2H16. Trusts with assets in Sydney and Melbourne like Ascendas Hospitality REIT (AHREIT) are expected to fare well due to a continued asset crunch. On the other hand, CDLHT, with its exposure to properties in Brisbane and Perth, is expected to remain weak due to “more supply in the pipeline and weak mining-sector spending”, the report adds. Downside risks to CDLHT’s earnings are however, limited due to the fixed nature of income accruing from CDLHT’s Australian properties.
REITs with exposure to China continue to deliver growth in RevPAR. This is expected to persist into 2H16.
Moving forward, weaker economic data coming out of Singapore and Australia may lead to downside risks for Hospitality SREITs. In light of the upcoming supply of hotel rooms to be released into the market, any reversal of the positive trend evidenced in 1H16 could be detrimental to the sector.
As at 1Q16, sector leverage is healthy at 36%. About three quarters of the sector’s debts is at fixed rates, thus insulating it from interest rate uncertainties.
As at 9.33am, ART is down 1.8% at $1.105, OUE H-Trust is flat at 67 cents, CDLHT is down 1.7% at $1.425 and AHREIT is up 0.8% at 66.5 cents.
Click Here To Register For Free Trial Services OR Give A Missed Call : +6531581402 Follow Us On Twitter : www.twitter.com/epicresearchsg Like Us On Facebook : www.facebook.com/EpicResearchSingapore Need Any Assistance Feel Free To Mail Us at : info@epicresearch.sg
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