Hospitality sector's RevPAR to grow 2-3% in 2019

RevPAR for luxury hotels grew 3.3% YoY to $185 for 5M19.

Singapore’s hospitality sector is forecasted to witness a 2-3% improvement in revenue per available room (RevPAR) for FY 2019 thanks to a modest new supply coming on board in the core Central Business District (CBD) and Orchard areas and recent asset enhancement initiatives (AEIs), a report by DBS Equity Research revealed.

Based on the latest statistics from the Singapore Tourism Board (STB), RevPAR for May was up 0.3% YoY to $171, rebounding from the 1.2% YoY decline seen in April. That said, for the first five months of 2019 (5M19), RevPAR was flat YoY at $185.

According to DBS’ analyst Mervin Song, the luxury category continued to be strong with May RevPAR up a further 3% YoY after the 3.8% YoY growth recorded in April. “For 5M19, RevPAR for luxury hotels was up 3.3% YoY to $185,” he said.

Offsetting the strength of luxury hotels were hotels in the upscale and economy categories with RevPAR for May down 1.1% and 3.3% YoY, respectively. This followed the declines of 0.8% and 7.3% in April 2019.

Meanwhile, performance for mid-tier hotels was mixed for the first two months of Q2 2019. RevPAR for May was up 2.9% YoY after a 1.6% YoY drop in April, Song noted. For 5M19, RevPAR for the upscale, mid-tier and economy categories were down 2.4%, 0.2% and 0.7% YoY, respectively.

“Steady RevPAR performance for the overall industry in May was underpinned by 0.9% and 0.3% YoY rise in visitor arrivals and total visitor days, respectively,” he explained. “The softer performance outside the luxury category may be a function of weaker visitor arrivals from Indonesia, India, Thailand and Vietnam which saw declines of 5.3%, 6.9%, 8.5% and 7.9% YoY, respectively.”

A separate report by CGS-CIMB noted that fewer events and economic uncertainties may have dampened tourist arrivals.

“The absence of large scale events such as Food & Hotel Asia 2018 and events related to Singapore’s ASEAN chairmanship which were present last year, as well as weaker corporate travel due to ongoing trade tensions and slower economic growth would dampen demand for short-stay accommodation. We expect weak Q2 results given tepid tourist arrivals which will drag RevPAR growth despite the low hotel supply,” analysts Eing Kar Mei and Lock Mun Yee said.

However, looking ahead, they highlighted that key events such as the Grand Prix in September and the International Champions Cup Singapore football championship scheduled to take place in H2 should drive up tourist arrivals.

Song added that at current levels, there is valuation support for Singapore’s hospitality REITs, highlighting how the implied price for City Developments (CDREIT) and Far East Hospitality Trust’s (FEHT) Singapore portfolio stands at $715,000 and $680,000 per key respectively, compared to $700,000 to $2m per key for recent hotel transactions.

“Furthermore, stocks such as CDREIT and Frasers Hospitality Trust (FHT) have net asset value (NAV) upside from potential asset disposals. In the event that Novotel Liang Court is disposed as part of the redevelopment of the overall Liang Court mixed development site, CDREIT could potentially crystalise 20% upside for the property,” he said.