Recovery on track for Singapore's hoteliers

AT this point, it's anyone's guess how 2020 will pan out, but things look more promising for Singapore's hospitality counters than they have in recent years as the hotel sector emerges from a downcycle.

Despite uncertainties in the global economy, tourist arrivals have held up well this year. Ahead of the peak year-end period, visitor arrivals have risen 2.3 per cent year-on-year to 15.85 million in the first 10 months of the year, putting it on track to hit the Singapore Tourism Board's (STB) projection of between 18.7 million and 19.2 million visitors for 2019.

Preliminary data from the STB shows that revenue per available room (RevPAR) clocked an average of S$191.40 in the first 10 months of this year, up from S$189.20 for the corresponding period in 2018.

This came as occupancy averaged out to 87.2 per cent for January to October, edging up slightly from 86.7 per cent a year ago. The average room rate worked out to S$219.30, slightly higher than the S$218.10 chalked up for the same period in 2018.

And if occupancies remain high, the next step for Singapore's hoteliers would be to start raising room rates, spearheading the next phase of growth, some analysts reckon.

Tourism receipts, on the other hand, haven't fared as well, dented by headwinds from a slowing global economy. For the first half of this year, tourism spend has fallen 3 per cent to S$13.1 billion, even as visitor arrivals rose 1.3 per cent to 9.3 million. The decline in spend came as tourists tightened their purse-strings - likely due to global uncertainties and the strength of the Singapore dollar against certain currencies - and as arrivals for the business travel and meetings, incentives, conferences, and exhibitions (MICE) segment weakened.

Nonetheless, the 2020 MICE calendar will bring both a number of returning and new events, such as the Singapore Airshow, Food & Hotel Asia and Gamescom Asia. Typically, even years are busier for the MICE segment than odd years, since some big events are biennial.

And should the ongoing protests in Hong Kong drag on, this may also prompt event organisers and tourists turn to other cities in the region such as Singapore. Already, there have been signs of this, with the Global Wellness Summit and The Asia Video Industry Association reportedly pulling out of Hong Kong at the last minute to hold their events in Singapore this year.

The busy MICE calender for 2020 should keep hotels buzzing, especially against the backdrop of muted supply growth. Incoming supply of hotel rooms is expected to clock around 1.1 per cent for 2020, and grow at a compound annual growth rate (CAGR) of 1.3 per cent from end-2018 to end-2022, tapering from the 5.5 per cent clip over 2014-2017.

The majority of incoming supply over the next three years will stem from the upscale and luxury segments in the city centre, which is less likely to compete directly with the listed hospitality Reits' portfolios, according to RHB analyst Vijay Natarajan. He projects that visitor arrivals and RevPAR will expand by 2-5 per cent next year.

Maybank Kim Eng analyst Chua Su Tye sees "firm distribution per unit (DPU) recovery" for hospitality Reits and estimates RevPAR growth of 3-5 per cent per annum as the hotel industry comes out of what he describes as "Singapore's longest-ever RevPAR downcycle".

Similarly, DBS Group Research analysts Derek Tan and Rachel Tan forecast a 3 per cent uptick in RevPAR next year on average. Every one per cent gain in RevPar translates to a 0.3-0.5 per cent increase in distributions for hospitality Reits, they estimate, adding that Reits with strong exposure to the Singapore market such as Far East Hospitality Trust (FEHT) and CDL Hospitality Trusts (CDLHT) stand to benefit.

Ascott Residence Trust is also seen as having possible upside from being able to leverage its balance sheet to scoop up potential acquisitions. The lower-for-longer interest rate environment doesn't hurt S-Reits either.

Meanwhile, should a higher debt ceiling materialise, following the consultation exercise by Singapore's central bank earlier this year, that could also provide with the S-Reit sector with an added lift.