Yahoo Finance Ascott Residence Trust is Up 12% Year to Date: Is it Time to Buy Hospitality REITs?
Air travel has rushed back with a vengeance since Singapore reopened its borders fully in April.
The surge in the number of passengers on Singapore Airlines Limited (SGX: C6L) flights has been nothing short of amazing.
Passenger numbers jumped more than 14-fold in June, shooting up from 132,600 to 1.94 million.
Pent-up demand for vacations has benefitted not just the airline, but also companies and REITs in the tourism and hospitality sectors.
Of note, the unit price of Ascott Residence Trust (SGX: HMN), or ART, the largest hospitality trust in the Asia Pacific region, has surged by nearly 12% year to date.
Does this portend better days to come for the hospitality REIT sector? Let’s take a closer look.
Higher DPUs all around
The recent REIT earnings season has given investors ample reason to feel optimistic.
Hospitality REITs have reported higher distributions all around for their fiscal 2022 first half (1H2022) amid a sharp rise in revenue.
ART saw its revenue jump 45% year on year to S$267.4 million due to higher revenue from existing properties coupled with contributions from its expanded portfolio of student accommodation and rental housing properties.
The distributable amount for 1H2022 increased by 20% year on year to S$76.7 million and distribution per stapled security (DPSS) rose 14% year on year to S$0.0233.
If DPSS was adjusted for one-off and exceptional items, it would have more than doubled year on year to S$0.0178.
CDL Hospitality Trusts (SGX: J85), or CDLHT, reported a 49% year on year surge in revenue to S$98.6 million while net property income (NPI) climbed 37.8% year on year to S$51 million over the same period.
CDLHT saw DPSS soar by 67.2% year on year to S$0.0204 after retaining a sum for working capital.
And Far East Hospitality Trust (SGX: Q5T), or FEHT, saw gross revenue dip 1.4% year on year for 1H2022.
NPI, however, inched up 3.5% year on year to S$37.4 million and DPSS surged by 40% year on year to S$0.0154.
The dip in revenue was due to the divestment of Central Square during the period; otherwise, revenue from serviced residences and commercial premises would have risen 12.1% and 12.6% year on year, respectively.
Better operating numbers
Besides the better top-line numbers and higher DPSS, the hospitality REITs also saw improved operating numbers that justify further optimism.
ART saw overall revenue per available unit (RevPAU) jump 60% year on year to S$96/day for 1H2022.
In particular, the second quarter’s (2Q2022) RevPAU surged by 91% year on year due to a higher average daily rate (ADR) and better occupancy.
The better numbers were due to strong demand from corporate and international travellers, while long stays helped to anchor the serviced residences segment to provide a strong base for high occupancy rates.
Meanwhile, Frasers Hospitality Trust (SGX: ACV), which reported its fiscal 2022’s nine-month (9M2022) business update, saw sustained improvement across all of its markets.
Singapore’s ADR improved from S$201 to S$232 for 9M2022, occupancy rose from 59.8% to 68.5% over the same period, while revenue per available room (RevPAR) increased by 32.5% year on year to S$159.
Likewise, CDLHT reported that RevPAR rose in all its regions except for slight dips in New Zealand and Australia for 1H2022.
Finally, FEHT has seen ADR and RevPAR rise by 50% and 31.4% year on year to S$99 and S$67, respectively, for 1H2022.
Interest rate risks are mitigated
If you’re wondering how these REITs will fare as interest rates continue to head up, you should feel reassured.
All four hospitality REITs have more than half of their total debt locked into fixed rates.
ART has 79% of its debt on fixed rates and has a low effective cost of borrowing at just 1.7%.
Similarly, FHT has close to 88% of its borrowings on fixed rates with a cost of debt of 2.2%.
Fixed rate coverage for FEHT and CDLHT is not as high.
For FEHT, 60.9% of its debt is on fixed rates. The REIT also boasts an aggregate leverage of 33.3% and an average cost of debt of just 1.8%.
Meanwhile, close to 64% of CDLHT debt is on fixed rates.
Investors may want to watch its gearing which is approaching the 40% mark, clocking in at 39.5% as of 30 June 2022.
Get Smart: The return of blue skies
International arrivals are expected to increase to 65% of pre-pandemic levels in the current quarter, a faster recovery than expected.
The Americas and Europe are also increasing their long-haul travel plans with more flight searches for long-haul travel to the Asia-Pacific region.
These trends should continue to benefit the four hospitality REITs as they see a firm return to blue skies after a two-year storm.
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.
Follow us on Facebook and Telegram for the latest investing news and analyses!
Disclaimer: Royston Yang does not own shares in any of the companies mentioned.
The post Ascott Residence Trust is Up 12% Year to Date: Is it Time to Buy Hospitality REITs? appeared first on The Smart Investor.
