REITS

REITS: STB’s recently published Jul 2014 tourism numbers showed that tourist arrivals dipped 0.9% y/y, while hotel RevPAR was flattish in 7M14. CIMB weighs in. Although 7M14 was weaker y/y, it was still stronger m/m, which is 19.2% m/m than the historical average of 13.5% (since 2010). Similarly, Chinese and Indonesian tourist arrival rates rose 97.4% and 6.7% m/m in Jul 2014, respectively, above the historical average of 65.5% and -1.7%, respectively. Although this growth could partly be due to the low base from 1H14, CIMB thinks that it marks a turnaround in the tourism sector, thanks to the easing political tension in Thailand and slight recovery from the negative impact of the MH370 disappearance earlier this year. Luxury and upscale hotels are still better poised than mass market counterparts. CIMB says barring unforeseen circumstances, it is expecting 2H14 to deliver stronger performance than 1H on 1) the stabilisation of the Indonesian Rupiah, 2) delays in the delivery of several hotel projects, which will halve the estimated new supply of hotel rooms in FY14, 3) the slightly stronger tourist arrivals in 2H14 (+2.8% hoh, based on our estimates), and 4)the stronger corporate spending expectations in 2H14. CIMB likes CDL-HT (Add, TP:S$1.88) and OUE-HT (Add, TP: S$0.96) as a play on hospitality recovery.