Investors who wish to gain exposure to the hotel industry may consider choosing a hospitality real estate investment trust (REIT) to invest in. Hotel fortunes are tied to economic and tourism growth, and Singapore is a choice destination for many tourists who stop by when they visit Asia. Hospitality REITs also provide exposure to hotels in other countries such as Japan and South Korea, so that investors are able to enjoy a diversified portfolio of hotels that are not just limited to one country.
I decided to review four hospitality REITs to see which would make the most promising investment and compared them across three attributes (dividend yield, DPU growth, and gearing level). The four REITs chosen were as follows:
- Far East Hospitality Trust (SGX: Q5T), or FEHT, which holds a portfolio of 13 properties totalling 3,143 hotel rooms and serviced residence units in Singapore.
- CDL Hospitality Trust (SGX: J85), or CDLHT, owns 16 hotels and two resorts comprising 5,088 rooms as well as a retail mall, and its hotels cover countries such as Singapore, Germany, New Zealand, Australia, Japan, Italy, the UK and Maldives.
- Frasers Hospitality Trust (SGX: ACV), or FHT, owns 15 hotels in prime locations across 9 cities in Asia, Australia and Europe.
- Ascendas Hospitality Trust (SGX: Q1P), or AHT, owns 14 hotels with around 4,700 rooms geographically spread out across cities in Australia, Japan, South Korea and Singapore.
Among the four REITs, AHT and FHT both have a higher yield. Note that the yield is also a function of not just the DPU but also the share price. Investors need to ensure that the DPU is sustainable moving forward, as there could be instances where a high yield reflects a potential decline in DPU.
Winners: FHT and AHT
Increase or decrease in DPU
Of all the REITs, only AHT displayed a year-on-year increase in DPU of 2.9%. FHT saw the steepest drop at -11.5% while the other two REITs saw single-digit year-on-year declines. A year-on-year increase signifies that the REIT is doing well to grow DPU for investors, but investors should also observe the reasons for declines as they may be one-off in nature.
The gearing level gives an indication as to how much more the REIT can borrow in order to acquire more properties that may enhance DPU for investors. As the statutory limit for REITs’ gearing is 45%, the REIT which is furthest away from the limit should be regarded as having the most leeway to borrow further.
The Foolish conclusion
AHT has won on all three counts and appears to be the most attractive hospitality REIT to own. However, investors need to also study other attributes of the REIT, such as occupancy rates, revenue per available room (RevPAR) and the REIT’s outlook and plans for growth, before deciding to deploy their capital.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Royston Yang does not own shares in any of the companies mentioned.