Extensive booking cancellations loom for hotels amidst nCov outbreak

CDL Hospitality Trust and Ascott Residence Trust already reported cancelled bookings.

With up to 10% of business originating from China for Singapore and overseas assets, CDL Hospitality Trust (CDLHT) and Ascott Residence Trust (ART) stated that they saw some bookings being cancelled and they are expecting more to come, according to a report by Jefferies.

That said, this is expected to worsen once the CNY holiday period is over, coupled by a travel ban on outbound China group tours. However, the two managers assured that the cancellations are still within historical range.

“So far, cancellations have occurred for SG and Maldives assets; corporate/MICE and long stay/serviced residences demand should be less impacted unless there is expected presence of significant PRC delegates/speakers. Both managers concurred that these are early days, impact assessment is difficult and one needs to see through the initial incubation period,” said Jefferies’ equity analyst Krishna Guha.

He also noted that CDLHT reported 4.1% YoY RevPAR growth during the first 28 days of 2020. Its hotel assets constitute about 4% of total hotel rooms in Singapore, whilst Chinese travelers constituted 19% of visitor arrivals in November YTD 2019.

“Property managers are a bit more flexible on room pricing/rescheduling and more focused on alternate markets such as Southeast Asia and India. For assets located within China, the focus is on working with authorities and building trust between staff, guests and the broader public.

As for the serviced residences, its occupancy rate is expected to pick up as guests will likely extend its stay and avoid travelling. For instance, the minimum length of stay of ART’s serviced residences in China is six months, whilst its Singapore assets are at two months.

In serviced residences, some guests are extending stay and avoiding travel which may help with occupancy temporarily. The average duration of stay in China for serviced residences for ART is six months whilst that in Singapore is two months. In addition, ART announced proposed divestment of its asset in Wuhan. China contributes 6% of gross profit for ART. Its exposure to China will disappear after the divestment.

“The near-term outlook is uncertain given the possibility of spreading of nCov. That said, the DPU of hospitality REITs may be cushioned by diversified portfolio, presence of master leases/minimum rent guarantees, debt headroom for inorganic growth and flexibility around capital distributions,” Guha stated.