20140625-Maybank_KERPL-Singapore_REITs_Orchard_Road_s_enduring_appeal_37页_1mb

Singapore REITs Summary

Core Content

This report provides an in-depth analysis of the Singapore REITs market, with a specific focus on the Orchard Road micro-market for both hospitality and retail segments. It highlights the favorable dynamics of the hotel and retail sectors, emphasizing the resilient demand and limited supply that support property values and rental income. The report also outlines the positive outlook for the future of the area, supported by government initiatives and tourism trends, and recommends specific REITs based on their exposure to the Orchard Road area.

Main Points

• Orchard Road is a key shopping and hospitality area in Singapore, with 27 hotels and ~9,800 hotel rooms nearby.
• Retail space is estimated at ~5m sq ft, catering to both international visitors and local shoppers.
• The hotel/retail pipeline is expected to add only +13% and +6% of new supply from now till end-2017, which is low and favorable for occupancy rates and rental income.
• Tourism demand is expected to grow at 5-8% in 2014E, with tourist arrivals projected to reach 16.5m and 17.1m in 2014E and 2015E respectively.
• RevPAR for islandwide hotels is projected to grow 3.3% in 2014E before weakening by 2.6% in 2015E due to biennial events.
• Prime retail rentals are expected to grow at 2.5% CAGR in 2014E-2017E.
• Medical tourism and MICE (Meetings, Incentives, Conferences, Exhibitions) are identified as key drivers of visitor arrivals and tourism receipts, supporting hotel and retail demand.
• Singapore's status as a leading MICE hub is reinforced by government initiatives and infrastructure developments, including the integrated resorts and new venues.
• Medical tourism is growing at 12.6% CAGR, with Singapore competing with South Korea, Thailand, Malaysia, and India.
• Orchard Road is becoming a medical center of choice, with specialists and medical facilities concentrated in the area.
• Investment activity in Singapore hotels remains robust, with investment sales in 2013 reaching SGD3.7b.
• Hotel capital values are expected to remain resilient, with limited new supply and strong demand.

Key REITs Recommendations

The report recommends the following REITs based on their exposure to the Orchard Road area:

• OUE Hospitality Trust (100% of revenue from Orchard Road): Top choice due to its full exposure to the area.
• SGREIT (67% of revenue from Orchard Road): Strong exposure with a higher retail component.
• CDL Hospitality Trust (16% of revenue from Orchard Road): Limited exposure, but still a positive recommendation.

Financial Highlights

Stock	Mkt Cap (USD m)	Rating	Price (LC)	TP (LC)	Upside (%)	Price/DPU (x)	P/B (x)	Dividend Yield (%)
Starhill Global REIT	1,388.0	Buy	0.81	0.88	16	15.8	15.9	6.3
CDL Hospitality	1,343.9	Buy	1.72	1.93	19	15.2	14.8	6.6
OUE Hospitality Trust	932.7	Buy	0.89	0.93	12	13.7	14.2	7.3

Supporting Elements

1. MICE (Meetings, Incentives, Conferences, Exhibitions)

• Singapore has been a leading MICE hub with 6,000 business events annually.
• Tourism receipts from business travelers have grown at 10.9% CAGR.
• The integrated resorts and new venues are expected to boost hotel demand in the area.

2. Medical Tourism

• Medical tourism has been a major growth driver, with medical expenses growing at 12.6% CAGR.
• Singapore has internationally accredited healthcare services and is building new hospitals to increase bed capacity.
• Orchard Road has become a medical center of choice, with specialists and medical facilities concentrated in the area.

Outlook

• 2014E is expected to be a better year than 2013, with tourist arrivals and RevPAR growing.
• 2015E is expected to soften due to biennial events and new hotel supply.
• Hotel room supply is expected to grow at 5.7% CAGR, nearly matching demand growth.
• Retail property prices are expected to surpass 2000 and 2008 peaks, with rentals approaching 2008 levels.
• Limited new supply over the next three years is expected to push up occupancy rates, benefiting retail landlords.

Conclusion

The Orchard Road micro-market is resilient and well-positioned for future growth due to limited new supply, strong demand from tourists, and supporting sectors like MICE and medical tourism. The report recommends OUE Hospitality Trust, SGREIT, and CDL Hospitality Trust as top REITs for investment, based on their revenue exposure and future potential. The investment market for Singapore hotels remains strong, with increased interest from international buyers and rising property values.