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Easing of supply pressures a boon for hoteliers in 2018

HOTEL room supply entering the hospitality market is expected to ease this year, which will help bolster the industry and give certain hotel players a boost.

After the boom in supply injection in recent years, new room supply is expected to slow down to a compound annual growth rate (CAGR) of 1.3 per cent from 2017-2020, according to data from CDL Hospitality Trusts (CDLHT), which incorporated data from Horwath and the Singapore Tourism Board (STB). In comparison, 2014-2017 saw a CAGR of 5.5 per cent.

This year, the supply pipeline is only expected to clock 2.5 per cent growth, before easing further to 0.8 per cent and 0.6 per cent in 2019 and 2020 respectively. This, in tandem with rising visitor arrivals, appears to be helping revenue per available room (RevPAR).

After several years of RevPAR declines, RevPAR growth for Singapore hotels appears to have turned a corner, highlighted OCBC Investment Research analyst Deborah Ong in a report, even with RevPAR still currently lower than the peak in 2012. While visitor arrivals have generally trended upwards, the heightened competition from new kids on the block had put pressure on RevPAR in previous years.

"Going forward, given that much of last year's supply injection was back-end loaded, we expect hotel RevPARs to accelerate from the pace seen in 1Q18," she added.

At the same time, key drivers for this year include a pick up in corporate travel as well as a strong pipeline of Mice (meetings, incentives, conferences and exhibitions) events, says DBS Group Research analyst Mervin Song.

In addition to being the Asean chairman this year, where Singapore will be the host for a number of events, the Mice calendar for this year is stronger than in 2017.

New links at Changi Airport this year could also give passenger traffic a lift, such as the return of Qantas's direct daily flights between Singapore and London earlier this year, while Singapore Airlines is poised to relaunch non-stop flights to New York in October.

According to preliminary estimates from the STB, RevPAR has already edged up 4.4 per cent year-on-year to S$191.1 for the January to April period, lifted by increases in both the average occupancy rate (AOR) and room rate.

The average room rate (ARR) was up 2.8 per cent to around S$222, while AOR inched up 1.4 percentage points to 86.2 per cent. As a result, total room revenue for the industry jumped over 9 per cent to nearly S$1.32 billion.

In particular, economy hotels did the best in terms of RevPAR, posting growth of nearly 10 per cent, while RevPAR for luxury hotels was nearly flat. Meanwhile, the RevPAR for mid-tier and upscale hotels increased by six per cent and 3.4 per cent respectively.

Overall visitor arrivals for the four-month period are up nearly seven per cent year-on-year to 6.18 million, the STB's preliminary estimates show. Visitorship from China - Singapore's biggest source market last year - continues to power ahead with an 11 per cent jump to 1.22 million.

OCBC Investment Research favours Far East Hospitality Trust, noting that the upside has yet to be priced in, as well as Hotel Properties Limited, owing to the latter's "attractive valuations". It has target prices of S$0.735 and S$4.74 respectively on the counters.

Meanwhile, DBS analysts Mr Song and Derek Tan have a 12-month target price of S$2 for CDLHT, which should benefit from its base of corporate clients as well as its exposure to the Singapore market through its six hotels here.

While there are potential risks - such as from rising interest rates - for now, the recovery in the hotel sector is expected to deliver better prospects for these hoteliers this year.