Excerpts from DBS report

China was the number one source market for travel for most countries in Asia. As the largest source market for travel globally before the pandemic, the return of Chinese travellers in 2023 will be the next boost for travel-related sectors in 2023.

Forward-leading indicators show that Chinese travel demand recovery will be fast, wide, and furious, albeit from a low recovery base.

Pent-up travel demand will spillover to neighbouring APAC countries such as South Korea, Japan, and Vietnam, where China was the number one source market making up c.30%-35% of the total inbound market as well as leisure-positioned destinations in the likes of Maldives.

 
GrandCopthorne4.23Grand Copthorne Waterfront Hotel is part of the CDL Hospitality Trusts. The 574-room hotel is situated on the banks of the historic Singapore River and close to the Central Business District.

Hotel S-REITs have a c.77% exposure to China-positioned travel markets. A recent Chinese travel sentiment survey showed that 84% of respondents intend to travel outside Mainland China within two years of the country’s reopening, with 9 out of the top 10 destinations falling within the APAC region.

Recovering DPUs

“Our bull case scenario could see sector DPUs recovering to c.106% of normalised levels in FY24F, which will more than compensate for higher interest rate risks.”

-- DBS Research

Our hotel S-REITs have geographical exposure in 6 out of the top 10 China-destination markets, of which Singapore, Australia, and Japan have the largest exposures at c.56%, 10%, and 7%, respectively.

We expect Chinese outbound tourism to stage a meaningful recovery in most of our S-REIT markets, given a combined exposure of c.77% to the top 10 China-destination markets will see Chinese demand as a key growth driver amongst our S-REITs for 2H23.

Recovery tracking ahead of our base case trajectory with a c.8.1% forward FY24F sector yield on our bull case forecast. We saw that the sector’s RevPAR recovery was already at c.94% of 2019 levels last year, ahead of our base case scenario.

Our bull case scenario could see sector DPUs recovering to c.106% of normalised levels in FY24F, which will more than compensate for higher interest rate risks.

While investor sentiment could be constrained by recessionary risks on the horizon, the impact is less than feared, with a positive correlation of 0.2 to sector operating metrics, while subdued room supply in the market will be key to maintaining sky-high rates in the coming years.

Prefer CLAS (Capitaland Ascott Trust) and CDREIT (CDL Hospital Trusts) within the sector to ride on global recovery and sustenance of high RevPAR.

Full report here. 

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