HOSPITALITY real estate investment trusts (Reits) in Singapore will likely deliver a convincing recovery trajectory from 2022 as borders in Singapore and Asia reopen, said DBS Group Research on Friday (Mar 25).

The research team said hospitality Singapore Reits (S-Reits) will likely deliver upside surprises to their distribution per unit (DPU) from 2022, after they recorded improvements in their revenue per available room (RevPAR) in their recent results and guided for a brighter outlook for 2022.

It expects RevPAR will reach 70 to 90 per cent of pre-Covid levels in FY2022 and FY2023, as Singapore's international-driven market stands to gain from global demand.

Noting that international border relaxation in Asia had come ahead of market expectations, DBS said the reopening should benefit Singapore greatly as the region is the single largest revenue market for the Republic's hospitality Reits with a 42 per cent to 100 per cent market share.

Hotels have also already started to see bright spots in the fourth quarter of 2021, even though borders remained "substantially closed" for most of the year, supported by vaccinated travel lanes and staycation businesses, after the government tapered down its hotel bookings for quarantine.

In fact, the expected recovery of RevPAR should drive share prices, due to the two's close correlation, the research team said.

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It noted that the hospitality sector is one of the remaining reopening plays - such as the retail and office sectors - that have yet to record a convincing share price recovery, likely due to the challenging operating climate for Singapore hoteliers in 2021.

The sector's price to net asset value (P/NAV), currently at 0.8 times, has only partially priced in reopening optimism and is below its general trend of trading within 1 standard deviation of its P/NAV of 0.8 times and 1 time, DBS said.

"We are of the view that the sector has been penalised twice by both a soft operating environment and suppressed book values. The markets should expect that the write back in capital values is a matter of time as valuers' price in a full recovery by year 2024," the research team said.

DBS's sector picks are Ascott Residence Trust and CDL Hospitality Trusts : J85 0%, for their global footprint that will benefit from both domestic recovery and international demand.

The research team also likes Far East Hospitality Trust : Q5T 0% as a proxy for the Singapore reopening theme, given that 100 per cent of its revenue is within Singapore, with potential upside from acquisitions.

READ MORE:

• Hot stocks: Aviation, tourism-linked counters rise on easing of Covid-19 measures

• Green shoots for retail and hospitality S-Reits amid new pandemic phase

• S-Reits remain optimistic about 2022 growth