Will Hospitality REITs take off? An overview of Hospitality REITs

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Are Singapore Hospitality REITs a good buy today? The IATA expects that personal and leisure travel will return from 2nd half of 2021, as travel bubbles form and vaccination continues. In this article we’ll be covering the 5 Hospitality REITs in Singapore (excl Eagle Hospitality Trust) in greater detail, comparing their portfolio information, financial ratios, etc. The 5 REITs are namely ARA Hospitality Trust, Ascott Residence Trust, CDL Hospitality Trust, Far East Hospitality Trust and Frasers Hospitality Trust.

REIT Portfolio Overview

ARA Hospitality Trust has a 100% US portfolio consisting of 41 upscale hotels across 22 states, which consists of Hyatt-branded and Mariott-branded hotels. It has a total portfolio valuation of approximately US$700 million.


The largest of the 5 REITs listed here, Ascott Residence Trust has a total portfolio valuation of about S$7.2 billion. It is the most globally diversified REIT in this list, with 86 properties in 15 countries, including China, Japan, Australia, France, Germany and the United States. Its properties in Singapore comprises 16% of the total portfolio valuation with 5 properties.


CDL Hospitality Trusts has 18 properties across 8 countries including Japan, United Kingdom, New Zealand, the Maldives, Australia, Germany and Italy. It has a portfolio valuation of S$2.597 billion. Its properties in Singapore comprises 66% of the total portfolio valuation with 7 properties.


Far East Hospitality Trust is the only REIT in this list with all its 9 Hotels and 4 Serviced Residences in Singapore. It has 3 in-house brands, namely Quincy, Village Hotels and Oasia Hotel, and has a total portfolio valuation of S$2.65 billion (which is similar to that of CDL Hospitality Trusts).


Frasers Hospitality Trust has 15 properties across Australia, Singapore, Japan, United Kingdom, Malaysia and Germany. It has a total portfolio valuation of S$2.25 billion. Its properties in Singapore comprises 35% of the total portfolio valuation with 2 properties.

Portfolio Distribution (Singapore)

Geographical distribution of the Hospitality REITs properties (in Singapore)

Some observations that can be drawn out include:

  • Most hospitality properties are located in and around the Central area.
  • Only 3 properties are located outside of Singapore’s Central. They are:
    • lyf one-north, a co-living property in development, with estimated completion in 2021 (Ascott Trust)
    • Village Residence Hougang and Village Hotel Changi (Far East Hospitality Trust)

Portfolio Distribution (World)

Geographical distribution of the Hospitality REITs properties globally. The size of the logo loosely reflects the percentage of the portfolio’s presence in the area.

One observation that can be drawn out is that Ascott Residence Trust, Frasers Hospitality Trust and CDL Hospitality Trusts are quite geographically diversified. Below, we will be comparing the REITs in-depth, using the latest values taken from the StocksCafe REIT screener, which values are taken from each REIT’s Q4 2020 business updates.

Fundamental Ratios

Funamental Ratio comparison between the 5 REITs. Information taken from the StocksCafe REIT screener. Values taken on 8th April 2021.

The above table shows the corresponding fundamental ratios of the 5 REITs. Some observations that can be made are shown below:

  • Yield (ttm): As expected, due to the Covid-19 pandemic stemming almost all international travel, yield (ttm) for all 5 hospitality REITs are low, at below 4% for all REITs.
  • Gearing: The gearing ratios for all 5 hospitality REITs have generally increased in the past 4 quarters largely due to the reduced revenue caused by the global pandemic. The gearing ratio trends for all 5 REITs are shown below for reference.

  • Price/NAV: All 5 Hospitality REITs are relatively undervalued, with the exception of Ascott Trust and CDL Hospitality Trusts which are almost at book value with P/NAV values of about 0.95-0.98.
  • NAV: Net Asset Value of each REIT
  • TTM DPU: ARA Hospitality Trust has not had any dividend payouts for the past 4 quarters.

Lease Management

Lease Management comparison between the 5 REITs. Information taken from the StocksCafe REIT screener. Values taken on 8th April 2021.

The above table shows the corresponding lease management values of the 5 REITs. Some observations that can be made are shown below:

  • No. of Properties: Ascott Trust is the largest with 86 properties, followed by ARA Hospitality Trust. However do note that ARAHT has the lowest total portfolio valuation, despite having the 2nd most no. of properties.
  • Occupancy Rate: N/A for Hospitality REITs, although ARAHT provided a 41% occupancy rate.
  • Weighted Average Lease Expiry (WALE): N/A for Hospitality REITs
  • Property Yield: Property Yields are low, but that is to be expected. 5 of the 8 S-REITs with the lowest Property Yield are Hospitality REITs (excl Eagle HT), shown below:

  • Property Portfolio Value: ARAHT has the lowest total portfolio value, and Ascott Trust has the highest portfolio value. The rest have portfolio values of about $2-3B.

Debt Management

Debt Management comparison between the 5 REITs. Information taken from the StocksCafe REIT screener. Values taken on 8th April 2021.

The above table shows the corresponding lease management values of the 5 REITs. Some observations that can be made are shown below:

  • Weighted Average Debt Maturity (WADM): The WADM for all 5 REITs are between 2.3 and 3 years.
  • Interest Cost/Cost of Debt: ARAHT has a higher cost of debt compared to the other REITs, at 3.4%.
  • Interest Coverage Ratio: Interest Coverage Ratio is at or below 2.4 for all 5 REITs. This is expected due to the decreased revenue.
  • Unsecured Borrowings: Most of the borrowings made by the 5 REITs are unsecured, with the exception of ARAHT, with 29.2% unsecured borrowings.

Want to invest in Singapore REITs but don’t know how to start? Or not happy with your current investment portfolio? Contact Kenny here at kennyloh@fapl.sg.

Kenny Loh is a Senior Consultant and REITs Specialist of Singapore’s top Independent Financial Advisor. He helps clients construct diversified portfolios consisting of different asset classes from REITs, Equities, Bonds, ETFs, Unit Trusts, Private Equity, Alternative Investments, Digital Assets and Fixed Maturity Funds to achieve an optimal risk adjusted return. Kenny is also a CERTIFIED FINANCIAL PLANNER, SGX Academy REIT Trainer, Certified IBF Trainer of Associate REIT Investment Advisor (ARIA) and also an invited speaker of REITs Symposium and Invest Fair. Kenny Loh also offers REIT Portfolio Advisory for a fee. Do contact him at kennyloh@fapl.sg 

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Money and Me: What’s the link between bond yields and S-REITs?

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5 April 2021 

Money and Me: What’s the link between bond yields and S-REITs?

Michelle Martin and Kenny Loh, REIT Specialist and Certified Financial Planner discuss the link between S-REITs and bond yields, residential property in Singapore, how have REITs performed so far and REITs benefitting from improvement in Singapore’s economy.

  • The rise in 10-Year Government Bond yields
  • How have REITs been performing so far in 2021
  • Sell-off of large market capitalisation S-REITs.
  • Price/NAV correlation with Data Centers for Industrial REITs
  •  

Listen to his previous market outlook interviews here:

Kenny Loh is a Senior Consultant and REITs Specialist of Singapore’s top Independent Financial Advisor. He helps clients construct diversified portfolios consisting of different asset classes from REITs, Equities, Bonds, ETFs, Unit Trusts, Private Equity, Alternative Investments and Fixed Maturity Funds to achieve an optimal risk adjusted return. Kenny is also a CERTIFIED FINANCIAL PLANNER, SGX Academy REIT Trainer, Certified IBF Trainer of Associate REIT Investment Advisor (ARIA) and also invited speaker of REITs Sympsosium and Invest Fair. 
 
You can join my Telegram channel #REITirement – SREIT Singapore REIT Market Update and Retirement related news. https://t.me/REITirement

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Singapore REIT Monthly Update (Apr 05 – 2021)

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Technical Analysis of FTSE ST REIT Index (FSTAS8670)

FTSE ST Real Estate Investment Trusts (FTSE ST REIT Index) increased from 826.65 to 859.68 (+3.99%) compared to last month update. Currently the Singapore REIT index is still trading with a range between 816 and 874.

  • As for now, Short term direction: Sideway.
  • Immediate Support at 816, followed by 775.
  • Immediate Resistance at 874.

Previous chart on FTSE ST REIT index can be found in the last post Singapore REIT Fundamental Comparison Table on Mar 4, 2021.

Fundamental Analysis of 40 Singapore REITs

The following is the compilation of 40 Singapore REITs with colour coding of the Distribution Yield, Gearing Ratio and Price to NAV Ratio.

  • Note 1: The Financial Ratio are based on past data and there are lagging indicators.
  • Note 2: This REIT table takes into account the dividend cuts due to COVID-19 outbreak. Yield is calculated trailing twelve months (ttm), therefore REITs with delayed payouts might have lower displayed yields, thus yield displayed might be lower.
  • Note 3: REITs highlighted in blue have been updated with the latest the Q1 2021 business updates.

(Source: https://stocks.cafe/kenny/advanced)

Do sign up for the REIT screener at only ~$8.33 per month! (limited time only). Normal price $120 per year.

  • Price/NAV remained at 1.01
    • Was 1.01 in March 2021
    • Singapore Overall REIT sector is at about fair value now
    • Take note that NAV is adjusted downward for most REITs due to drop in rental income (Property valuation is done using DCF model or comparative model)
  • TTM Distribution Yield decreased to 5.47%
    • Decreased from 5.68% in March 2021
    • 31% of Singapore REITs (12 out of 39) have distribution yields of above 7%.
    • Do take note that these yield numbers are based on current prices taking into account the delayed distribution/dividend cuts due to COVID-19, and post circuit breaker recovery.
    • Excluded Eagle Hospitality Trust due to suspension.
  • Gearing Ratio at 37.44%. 
    • Remained at 37.44% in March 2021.
    • Gearing Ratios are updated quarterly.
    • In general, Singapore REITs sector gearing ratio is healthy but started to increase due to the reduction of the valuation of portfolios and increase in borrowing due to Covid-19.
  • Most overvalued REITs (based on Price/NAV)
    • Keppel DC REIT (Price/NAV = 2.29)
    • Parkway Life REIT (Price/NAV = 2.08)
    • Mapletree Industrial Trust (Price/NAV = 1.61)
    • Mapletree Logistics Trust (Price/NAV = 1.52)
    • Ascendas REIT (Price/NAV = 1.38)
    • No change from January – March 2021 for top 5 overvalued REITs ranking
  • Most undervalued REITs (based on Price/NAV)
    • Lippo Malls Indonesia Retail Trust (Price/NAV = 0.39)
    • First REIT (Price/NAV = 0.47)
    • BHG REIT (Price/NAV = 0.64)
    • OUE Commercial REIT (Price/NAV = 0.66)
    • Starhill Global REIT (Price/NAV = 0.70)
    • Sabana REIT (Price/NAV =0.77)
    • Suntec REIT (Price/NAV = 0.77)
  • Highest Distribution Yield REITs (ttm)
    • First REIT (17.66%)
    • KepPacOak US REIT (8.65%)
    • Prime US REIT (8.31%)
    • IREIT Global (7.80%)
    • Manulife REIT (7.67%)
    • Cromwell European REIT (7.57%)
    • Reminder that these yield numbers are based on current prices taking into account delayed distribution/dividend cuts due to COVID-19.
    • Some REITs opted for semi-annual reporting and thus no quarterly DPU was announced.
  • Highest Gearing Ratio REITs
    • Eagle Hospitality Trust (65.5%) * Filed for Chapter 11 Bankruptcy Protection *
    • First REIT (49%)
    • ARA Hospitality Trust (48.2%)
    • Suntec REIT (44.3%)
    • Lippo Malls Retail Trust (42.4%)
    • ESR REIT (41.6%)
    • Mapletree NAC Trust (41.3%)
    • OUE Commercial REIT (41.2%)
  • Total Singapore REIT Market Capitalisation = S$107.9 Billion.
    • Increased from S$104.9 Billion in January 2021.
  • Biggest Market Capitalisation REITs:
    • Capitaland Integrated Commercial Trust ($14.18B)
    • Ascendas REIT ($12.30B)
    • Mapletree Logistics Trust ($8.31B)
    • Mapletree Commercial Trust ($7.06B)
    • Mapletree Industrial Trust ($6.42B)
    • No change in ranking compared to March 2021 update.
  • Smallest Market Capitalisation REITs:
    • BHG Retail REIT ($281M)
    • United Hamsphire REIT ($327M)
    • First REIT ($376M)
    • ARA Hospitality Trust ($397M)
    • Sabana REIT ($415M)
    • No change in ranking compared to March 2021 update.
  • Eagle Hospitality Trust is currently suspended

Disclaimer: The above table is best used for “screening and shortlisting only”. It is NOT for investing (Buy / Sell) decision. To learn how to use the table and make investing decision, Sign up next REIT Investing Workshop here to learn how to choose a fundamentally strong Singapore REIT for long term investing for passive income generation.

Top 20 Performers of the Month (Source: https://stocks.cafe/kenny/advanced)

SG 10 Year & US 10 Year Government Bond Yield

  • SG 10 Year: 1.391%
  • US 10 Year: 1.45%

Summary

Fundamentally the whole Singapore REITs is close to fair value now based on simple average on the Price/NAV. Below is the market cap heat map for the past 1 month. The REIT sector rebounded after a correction due to spike in 10 Years US Treasury Bond Yield. US interest rate continues to stay low at 0.25% from last US FOMC meeting on Mar 17, 2021.  It is expected the US interest rate to stay low for the whole of 2021.

(Source: https://stocks.cafe/kenny/overview)

Yield spread (reference to 10 year Singapore government bond of 1.391%) continues to tighten from 4.289% to 4.08%. However, the risk premium are still attractive to accumulate Singapore REITs in stages to lock in the current price and long term yield after the recovery. Moving forward, it is expected the increase of DPU due to the recovery of global economy.

Technically the REIT Index is currently trading in a sideway consolidation after the false breakout. However, current macro factors such as low interest rate environment, aggressive M&A for future DPU growth and recovery of global economic support the bullish breakout.

Note: This above analysis is for my own personal research and it is NOT a buy or sell recommendation. Investors who would like to leverage on my extensive research and years on Singapore REIT investing experience can approach me separately for REIT Portfolio Consultation.

Kenny Loh is a Senior Consultant and REITs Specialist of Singapore’s top Independent Financial Advisor. He helps clients construct diversified portfolios consisting of different asset classes from REITs, Equities, Bonds, ETFs, Unit Trusts, Private Equity, Alternative Investments, Digital Assets and Fixed Maturity Funds to achieve an optimal risk adjusted return. Kenny is also a CERTIFIED FINANCIAL PLANNER, SGX Academy REIT Trainer, Certified IBF Trainer of Associate REIT Investment Advisor (ARIA) and also invited speaker of REITs Symposium and Invest Fair.  You can join my Telegram channel #REITirement – SREIT Singapore REIT Market Update and Retirement related news. https://t.me/REITirement

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