How the Pandemic Turned Hospitality REITs Into a Money‑Haunting Experience
For years, investors thought REITs—real estate investment trusts—were the trusty steed of steady income. A dependable source of dividends, they promised a regular paycheck from the world of real estate.
But the pandemic hit and turned that tranquil ride into a roller‑coaster. Suddenly, many REITs announced dramatic cuts to their distribution per unit (DPU).
Why Hospitality REITs Got the Short End of the Stick
When nations rolled out lockdowns and social distancing, hospitality REITs with hotels and serviced residences suffered the hardest. These properties rely almost entirely on tourist traffic, and the globe‑wide travel curfew put that traffic to zero.
- Hotels – Rooms sat empty, and room rates slumped like a dropped soufflé.
- Serviced apartments – Long‑term stays vanished, leaving cabins humming and guests gone.
- Spacious event venues – Conferences, weddings, and ceremonies went “canceled” faster than a bad joke at a party.
What Investors Need to Know Now
Don’t let the gloom scare you away forever. A few silver linings are emerging:
- Some REITs are restructuring debt, lowering cost and making room for a smoother ride later.
- As travel gears back on, demand will likely spike, giving those hotels a chance to bounce back.
- Property owners are pivoting—think pop‑up cafés, community spaces, and seasonal rentals—to keep a small income stream running.
In short, hospitality REITs have taken a hard knock, but the road to recovery is wide open. Investors who keep their eyes on the horizon may not only recover what’s lost but earn a fresh windfall when tourism revives.
Steep declines in revenue and NPI
Hospitality REITs Take a Dashing Dip
When you look at the quarter that wrapped up on 31 March 2020, the four Singapore hospitality REITs—CDL Hospitality Trust (SGX: J85), Far East Hospitality Trust (SGX: Q5T), ARA US Hospitality Trust (SGX: XLZ) and Frasers Hospitality Trust (SGX: ACV)—all felt the sting of the pandemic. Revenue fell sharply, with each trust sliding between 17 % and a whopping 41 %. Net property income (NPI) echoed the trend, dropping from 21 % up to a 52 % plunge.
ARA US Hospitality Trust—Hard Landing for the Newcomer
- Revenue: down another 24.5 % from what the manager had forecasted.
- NPI: sank 68.2 % short of expectations.
- Pro tip: this trust had just gone public last year, so the ride was fresh but rough.
Stock Prices: Gone Nuts
The shares of these REITs haven’t performed too well either. Since the start of the year, their stock prices have tumble-fell between 33 % and 54 %.
Bottom line: the hospitality sector is taking a hard hit, and the investors are feeling the squeeze. If you’re watching the market closely, it might be a good idea to keep your eyes wide open—or maybe sit in on a virtual meeting of the board to see what’s next.
The worst is yet to come
How the Pandemic Irked REITs in Q2 2020
Investors paying close attention will notice that the quarter ending March 31, 2020 only reflected the early wave of lockdowns that began in March itself.
January and February ran fairly normally – except in China, where the market was still in a state of flux.
In April, the virus slipped into a deeper groove: countries started imposing lockdowns and sealing borders, and air travel hit a near-stand‑still, much like a plane stuck in taxiway fog.
What the June 30 Quarter Looks Like
- Many hotels had to close shop entirely.
- Those that stayed open saw occupancy rates tumble dramatically.
- Overall, REITs are projected to suffer a noticeably harsher decline for the February‑June stretch.
Investor Take‑Away
Get ready for sharper DPU cuts in the short term. New guidelines now allow extending the period during which 90 % of taxable income can be distributed, meaning you might feel the pinch sooner.
Bottom line: brace yourself; the pandemic’s roller‑coaster is still pulling hard on REIT revenue.
Adopting prudent measures
REITs Get Their Act Together Amid Pandemic Showdown
When the world turned upside down, these four REITs didn’t just sit on their hands. They rolled up their sleeves and kicked in some cool moves to keep the cash flow humming.
CDL Hospitality Trust – “Hold the Hype”
- Calling it quits on new enhancement projects.
- Putting a pause on all non‑essential spending.
Far East Hospitality Trust – “Trim the Tails”
- Management fee slashed from 0.3 % to a leaner 0.28 % since Jan 1, 2020.
- Performance fee now the smaller of 4 % of Net Property Income or the yearly distributable income.
Frasers Hospitality Trust – “Bank the Brains”
- Locked in 80 % of its distributable income for the first half of FY 2020.
- Purpose? Keep the reserve ready for any more curveballs.
In short, these REIT gurus are not just surviving; they’re scheming smartly to weather the storm while keeping investors on their toes.
Get Smart: No glimmer of hope yet
Trend Alert: Tourists Vanishing Like Socks in a Dryer
Picture a neat line graph, flat‑lined and all, painted on the board of the Singapore Tourism Board (STB) back on Feb 11. That curve wasn’t just a doodle—it was a chilling forecast that tourists would drop by 30% year‑on‑year, hitting a slim 13.4 million visitors.
Why the Numbers Are So Nail‑Biting
Even though the pandemic was still fighting its way into the spotlight, the 2024 outlook was like a warning sign flashing “bananas! (ease of travel)”. And, because airlines were trimming flights like a chef garnishing a dish, the white‑caps of hope loomed thin.
Global Travel: Not Just a Pandemic‑Diary
Remember the shockwaves from the September 11 attacks and the SARS scare? In both cases, hotel rooms turned into private lobsters, and tourist numbers plunged like a glass of ice water.
Hospitality REITs: The Unknown Frontier
- REITs are sliding cost‑cutting like a roller‑coaster. Investors should brace for more pain before the lights flicker back on.
- Return on investment? More like a game of “Where’s the needle?” Current outlook is a bit like a weather forecast—cloudy, with a chance of thunderstorms.
Bottom Line: A Steep, Rough Rumble Ahead
While online meetings resolved last year’s biggest meetings, the hospitality sector is still on a bumpy ride. The road to recovery: stay patient, keep those hedges trimmed, and keep your emotions in check.
—Originally brought to you by The Smart Investor.
