Meaningful recovery for hospitality sector likely in 2022: OCBC

OCBC Investment Research expects hospitality REITs to post stronger second-half results.

Despite a mixed back of results from top hospitality REITs in the first half of the year, OCBC Investment Research expects stronger overall results from the hospitality sector in the second half (H2).

Moreover, OCBC said meaningful recovery would finally be apparent next year.

“With increasing vaccination rates and further easing of restrictions, we could see a better H2 2021 and expect the recovery momentum to continue into 2H21, although a more meaningful recovery would likely happen in 2022, following the resumption of travel confidence,” OCBC Investment Research said in a report.

OCBC looked into the results of three REITs in their report: Ascott Residence Trust (ART), CDL Hospitality Trusts (CDLHT), and Far East Hospitality Trust (FEHT). Whilst Ascott posted a 95% distribution per unit growth in the first half, Far East and CDL lagged behind with a 7% growth and 19% contraction, respectively.

It noted that demand for hotels was still primarily supported by the government, as hotels serving as isolation facilities jumped to more than 90 as of 4 August from over 70 in May.

“Currently, six out of FEHT’s nine hotels, two out of ART’s three Singapore properties, and five out of CDLHT’s six Singapore hotels are on government isolation businesses. REIT Managers see a high likelihood that existing contracts would be extended in [the third quarter of 2021] as the COVID-19 situation remains fluid, and governments may still need some inventory of rooms for imported cases. These could continue to provide income support before an eventual recovery of the hospitality sector as Singapore progressively reopens its borders,” OCBC said.

It flagged as a potential downside risk of more COVID-19 infections due to the Delta variant.

Potential growth drivers include high vaccination rates, the vaccinated travel lanes with Germany and Brunei starting 8 September, and the lifting of border restrictions for visitors from Hong Kong and Brunei.

“As governments step up immunisation efforts both locally and globally, Singapore is likely to reopen its borders to more destinations in a careful and calibrated manner. Whilst visitor arrivals may remain muted in the near term as vaccination rates and border measures vary in countries, we believe the reopening of borders marks a measured start to the resumption of air travel, aiding the recovery of the hospitality sector, barring the risks of a potential spike in Delta variant cases,” OCBC said.