DBS Group Research has named CapitaLand Ascott Trust (CLAS) as its top pick for Singapore hotel REITs amid a softer operating environment for growth due to its diversified global portfolio.
Analysts Geraldine Wong and Derek Tan point out that Singapore had a good year for tourism in 2024, with visa-free arrangements with Chain and Taylor Swift Concerts. This also makes for a high base for visitorship and hotel revenue per available room (RevPAR) in 2025, which will be an uphill battle for hoteliers to deliver growth.
“The return of China tourists was a catalyst that played out as expected in 2024, to reclaim its 2019 inbound market share of 19% ytd. We believe that going into 2025, Singapore hotels are near the tail end of pandemic recovery with a more modest RevPAR outlook in 2025 at 2%-3% on our expectations,” they add.
That said, DBS looks out for developments within the attractions scene locally, including Disney cruises and Resort World Sentosa (RWS) expansion that can be major tourist magnates. These, however, will likely come earliest in 2H2025.
The analysts highlight that hotel supply overhang looms, with 5,000 rooms set to launch in the next three years. These new hotel openings are mostly within the upscale to luxury end and within the central parts of Singapore.
“Given heightened competition and still prevalent trends of downtrading amongst tourists, we believe that hoteliers will find in 2025 a tough environment to raise rates considerably, although there may still be opportunity to raise room occupancy which remains below pre-pandemic levels,” say Wong and Tan.
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For CLAS, 83% of its portfolio of assets under management as at end FY2023 are outside of Singapore. The diversification factor has continued to drive performance this year, as overseas market performance helped offset some of the softening demand and supply dynamics in the local market, the analysts note.
CLAS will see a similar high bar for organic growth as peers, having benefited from both Taylor Swift concerts in Singapore and Australia, alongside France’s uplift from Summer Olympics this year.
However, asset enhancement initiative (AEI) completions scheduled for next year (Temple Bar Dublin, The Cavendish London, Sydney Central Hotel) will serve as inorganic growth drivers and be key contributors to meeting the high bar.
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CLAS is also in a unique position to share AEI-driven growth with unitholders while shielding DPU from any AEI impact. It can do this through distribution top-ups — which would buffer operational downtime associated with current and future AEIs, with about $300 million in undistributed divestment gains as a buffer; as well as its diversified portfolio of 101 assets and stable income from the long-stay segment.
DBS has a “buy” call on CLAS with a target price of $1.15.
As at 2.31pm, units in CLAS are trading 1 cent higher or 1.14% up at 88.5 cents.
