The hospitality sector was one of the hardest hit by the Covid-19 pandemic in 2020, as travel restrictions and widespread lockdowns brought tourism to a halt.

However, as the virus became more controlled in 2021 and restrictions began to ease, a surge in ‘revenge travel’ followed, with many eager to resume their holidays. Since then, the hospitality industry has been on a steady path to recovery.

Today, many countries are reporting tourism figures that surpass pre-pandemic levels seen in 2019. Similarly, hotels and serviced residences have witnessed improved occupancy rates and pricing, with many surpassing 2019 levels.

With this rebound, investors might find hospitality REITs attractive once again. In this post, we will explore 5 Singapore REITs focused on hospitality assets. You'll learn about the properties they invest in, their latest financial performance, occupancy rates, debt profiles, and distribution payouts to unitholders.

Let's dive in:

1. ARA US Hospitality Trust (SGX: XZL)

ARA US Hospitality Trust’s (ARA H-Trust) portfolio comprises 34 select-service hotels with a total of 4,442 rooms across 17 states in the United States.

Hotels in ARA-H-Trust’s portfolio are operated under the following brands: Hyatt House, Hyatt Place, AC Hotels by Marriott, Courtyard by Marriott, Residence Inn by Marriott, and Home2 Suites by Hilton.

For the first half of FY2024 ended 30 June (1H FY2024), gross revenue and net property income fell by 2.4% and 4.4% compared to last year to US$83.9 million and US$21.0 million respectively, due to interruptions from asset enhancement initiatives (AEI) projects at 4 hotels (Hyatt Place Mystic, Hyatt Place Racho Cordova, Hyatt Place Omaha, and Hyatt Place Secaucus), along with dispositions of Hyatt Place Oklahoma City Airport and Hyatt Place Pittsburgh Airport in September 2023 and March 2024 respectively.

Excluding the contributions from the six hotels, the same store gross revenue and net property income would have been up by 2.8% and 2.2% on a year-on-year basis respectively.

As of 30 June 2024, occupancy rate is at 69.1% (compared to 68.8% last year), with revenue per available room (RevPAR) at US$101 (a 0.4% improvement compared to last year) – both statistics are adjusted on a same store basis.

Looking at the debt profile of ARA H-Trust, based on its interest coverage ratio of just 2.2x, its aggregate leverage at 41.5% is very close to the regulatory limit of 45.0% set by the Monetary Authority of Singapore. Average cost of debt is also at a high level of 6.4%, with just 35.0% of borrowings hedged to fixed rates.

Finally, its distribution per stapled security tumbled by 50.2% compared to last year to US$0.00747, due to a 53.2% jump in finance cost.

2. CapitaLand Ascott Trust (SGX: HMN)

CapitaLand Ascott Trust’s (CLAS) portfolio comprises 102 properties (out of which, 53 are serviced residences, 16 are hotels, 24 are rental housing, and 9 are student accommodations) with more than 18,000 units in 45 cities across 16 countries in Asia Pacific, Europe, and the United States of America.

Its properties are mostly operated under the Ascott, Somerset, Quest, and Citadines brands.

CLAS’ revenue and gross profit for the first half of FY2024 ended 30 June (1H FY2024) climbed by 11% and 12% compared to last year to S$386.4 million and S$172.9 million respective, as a result of a stronger performance and contribution from new properties.

RevPAU for 1H FY2024 grew by 5% to S$145, compared to a year ago, as a result of higher room rates, with key markets Japan and the United States of America leading the growth.

CLAS’ debt profile is a healthy one – with gearing at 37.2%, interest coverage ratio at 3.7x, and borrowing cost at 3.0%. It has 82% of borrowings at fixed rates.

Distribution per stapled security fell by 8% compared to last year to S$0.0255.

3. CDL Hospitality Trusts (SGX: J85)

CDL Hospitality Trusts’ (CDLHT) portfolio comprises 20 properties (total of 4,820 hotel rooms, 352 built-to-rent apartment units and a retail mall) in the following countries:

• Singapore: Orchard Hotel, Grand Copthorne Waterfront Hotel, M Hotel, Copthorne King’s Hotel, Studio M Hotel, W Singapore – Sentosa Cove, and Claymore Connect
• Australia: Mecure Perth, and Ibis Perth
• New Zealand: Grand Millennium Auckland
• The Maldives: Angsana Velavaru, and Raffles Maldives Meradhoo
• Japan: Hotel MyStays Asakusabashi, and Hotel MyStays Kamata
• United Kingdom: Hilton Cambridge City Centre, The Lowry Hotel, voco Manchester – City Centre, and The Castings (Residential Build-to-Rent)
• Germany: Pullman Hotel Munich
• Italy: Hotel Cerretani Firenze – MGallery

For the first half of FY2024 ended 30 June (1H FY2024), revenue and net property income went up by 6.8% and 5.9% compared to last year to S$127.3 million and S$66.5 million respectively due to improvements in hotels in almost all the portfolio markets, except for the United Kingdom which was flat and New Zealand market which was down.

Average occupancy rate for 1H FY2024 climbed to 78.4%, from 69.2% a year ago, with RevPAR recording a 7.7% year-on-year improvement to S$193.

CDLHT’s gearing is at a healthy level of 37.7%, with interest coverage ratio at 2.66x, and weighted average cost of debt at a slightly high level of 4.2%. It has 52.0% of borrowings at fixed rates.

Finally, CDLHT’s distribution per stapled security remains the same as last year, at S$0.0251.

4. Far East Hospitality Trust (SGX: Q5T)

Far East Hospitality Trust (FEHT) has a portfolio of 12 properties totalling 3,015 hotel rooms and serviced residence units, all of them located in Singapore.

Hotels in its portfolio include Oasia Hotel Downtown, Oasia Hotel Novena, Rendezvous Hotel Singapore, Orchard Rendezvous Hotel, Vibe Hotel Singapore Orchard, Quincy Hotel Singapore, Village Hotel Albert Court and Village Hotel Bugis, while serviced residences in its portfolio include Adina Apartments Singapore Orchard, Village Residence Robertson Quay, and Village Residence Hougang.

For the first half of FY2024 ended 30 June (1H FY2024), FEHT’s gross revenue and net property income saw a 3.4% and 1.0% year-on-year improvement to S$53.8 million and S$49.5 million respectively, driven by higher master lease rental from the hotels and serviced residences, along with higher revenue from the retail and office spaces.

In terms of its portfolio performance for 1H FY2024, for hotels, occupancy climbed by 2.1 percentage points (pp) year-on-year to 80.4%, with RevPAR up by 6% to S$141, while for serviced residences, occupancy dipped by 3.2pp year-on-year to 85.1%, with RevPAR up by 0.9% to S$226.

FEHT has an aggregate leverage of 30.8%, which is one of the lowest among the Singapore REITs, with its interest coverage ratio at 3.2x, and average cost of debt at 4.1% (which is slightly on the high side). It only has 35.9% of borrowings hedged at fixed rates.

Distribution per stapled security for 1H FY2024 was up by 2.1% compared to last year to S$0.0196 due to the distribution of divestment gain of Central Square – for information, FEHT is one of the 6 REITs that managed to record a year-on-year improvement in its distribution payout for the period ended 30 June.

5. Frasers Hospitality Trust (SGX: ACV)

Frasers Hospitality Trust’s (FHT) portfolio includes 14 quality assets in prime locations in 9 key cities in Asia, Australia, and Europe.

Its properties are as follows:

• Singapore: InterContinental Singapore, Fraser Suites Singapore
• Malaysia: The Westin Kuala Lumpur
• Australia: Fraser Suites Sydney, Novotel Sydney Darling Square, and Novotel Melbourne on Collins
• Japan: ANA Crowne Plaza Kobe
• Germany: Maritim Hotel Dresden
• United Kingdom: Fraser Suites Queens Gate London, Park International London, Fraser Place Canary Wharf London, Ibis Styles London Gloucester Road, Fraser Suites Glasgow, and Fraser Suites Edinburgh

For the first half of FY2023/24 ended 31 March 2024 (1H FY2024), FHT reported a mixed set of results, with its gross revenue recording a 1.7% year-on-year growth to S$63.3 million due to slight improvement in its hospitality portfolio performance following further travel recovery in most of its operating markets, but its net property income declined by 1.3% in the same time period to S$44.7 million mainly due to the rise in Singapore property taxes, alongside increased labour and utilities cost driven by inflation across the portfolio.

Occupancy and RevPAR of its properties in the various geographical geographical locations for 1H FY2023/24 compared to a year ago is as follows:

• Singapore: Occupancy up 7.4pp to 76.3%, RevPAR up by 7.2% to S$282
• Australia: Occupancy down by 5.7pp to 78.5%, RevPAR down by 6.9% to AUD217
• United Kingdom: Occupancy down by 0.1pp to 77.5%, RevPAR up by 4.8% to GBP109
• Japan: Occupancy down by 5.9pp to 57.9%, RevPAR down by 13.3% to JPY8,037
• Malaysia: Occupancy down by 5.6pp to 77.7%, RevPAR down by 17.4% to MYR380
• Germany: No figures provided, but I note from the its presentation slide that performance showed a year-on-year improvement, underpinned by stronger ADR growth and supported by a recovery in domestic travel following lifted travel restrictions

FHT has a healthy debt profile, with its gearing at 35.5%, interest coverage ratio at 3.1x and effective cost of borrowing at 3.4%. It has 75.1% of borrowings at fixed rates.

Distribution per stapled security tumbled by 13.7% compared to last year to S$0.010910, as a result of higher finance costs, as borrowings were refinanced in a higher interest rate environment.

Closing Thoughts

In terms of the 5 hospitality REITs’ financial performances, CapitaLand Ascott Trust, CDL Hospitality Trusts, and Far East Hospitality Trust saw year-on-year improvements. However, among the 3, only Far East Hospitality Trust recorded growth in its distribution payout due to distribution of divestment gains.

On the performance of the properties in the REITs’ portfolio, most of them recorded an improvement in occupancy rate as a result of a continued rebound in travel (for leisure as well as for business) following the Covid-19 pandemic where travel borders were shut and the hospitality industry were adversely impacted. Most of the properties’ RevPAR also saw year-on-year growths.

As far as the hospitality REITs’ debt profile are concerned, apart from ARA US Hospitality Trust (with an aggregate leverage of 41.5% as of 30 June very close to the regulatory limit of 45.0% – which is as such because its interest coverage ratio is below 2.5x), the others managed to maintain their aggregate leverage at under 40%.

Lastly, it’s important for investors to recognise that the hospitality industry tends to be cyclical, meaning its performance is closely tied to the broader economic environment. During periods of economic downturns or slowdowns, demand for travel and accommodation may significantly decrease, leading to a dip in revenue for hotels and serviced residences.

This is on top of the rise of alternative lodging platforms like Airbnb, which has brought about additional competition, forcing traditional players to adapt. These disruptors offer flexible, often lower-cost options, which can attract a growing segment of price-sensitive travellers and long-term renters, thereby putting further pressure on the profitability of established hospitality businesses.

With that, I have come to the end of my review of the 5 Singapore REITs in the hospitality industry. Do note that all the opinions expressed in this post are purely mine, which I am sharing for educational purposes only. They do not constitute any buy or sell calls for any of the REITs. You should always do your own due diligence before you make any investment decisions.

Disclaimer: At the time of writing, I am not invested in any of the REITs in this post.

The post Investing in Singapore's Hospitality Scene: A Look at the 5 Listed REITs first appeared on The Singaporean Investor.