Singapore hospitality Reits should see earnings stabilise this year: Fitch (Amended)

EARNINGS of Singapore's hospitality Reits (real estate investment trusts) are expected to stabilise in 2016 due to higher visitor arrivals in the city-state, Fitch Ratings said in a report.

"This is a more upbeat view than last year when weaker visitor arrivals prompted (Fitch) to forecast Hospitality SREIT earnings would fall in 2016," the report said.

Singapore arrivals were up 14 per cent year on year in January to April thanks to strong demand from China and Indonesia. If this keeps up, it could offset potential earnings pressure from the 11 per cent increase in hotel room supply set to come onstream in 2016 to 2018, Fitch said.

The ratings agency also pointed to new assets acquired as another catalyst to earnings.

It singled out Ascott Residence Trust as a Reit likely to outperform the sector this year because of substantial acquisitions and refurbishments totalling over S$380 million last year. OUE Hospitality Trust and CDL Hospitality Trusts also spent an aggregate of S$425 million on new assets last year, which should give their earnings a lift, Fitch said.

Outside of Singapore, Reits such as Ascendas Hospitality Reit which have assets in cities with tight supply - such as Sydney and Melbourne - should fare well. "Assets in China . . . may present more upside in 2H16," Fitch added.

However, it pointed to downside risks as well, such as weaker fundamentals in Singapore and Australia and, in particular, a reversal of the positive trend in Singapore's visitor arrivals amid new hotels in the pipeline.

An earlier version of this article incorrectly stated that Ascott Residence Trust made over S$380 million in investments towards refurbishments last year. Ascott Residence Trust in fact spent over S$380 million on acquisitions and refurbishments in total last year. The article above has been revised to reflect this.