SINGAPORE (June 18): OCBC Investment Research is positive on Singapore’s hospitality sector as it sees a demand-supply situation ripe for revenue per available room (RevPAR) growth.
The research house expects hotel RevPARs in the city state to accelerate from its pace seen in 1Q18, with hotel room supply only expected to increase 2.5% this year, and 0.8% and 0.6% in 2019 and 2020, respectively.
Beyond Singapore, the research house has also highlighted strong potential for RevPAR growth in mainland China, especially among luxury hotels, due to moderating hotel room supply, supportive government legislation and infrastructure developments which it deems as “massive”.
While OCBC’s research team sees this year as a positive one for hospitality Singapore REITs (S-REITs), it remains wary on the impact of rate hikes on REITs as an asset class.
To that end, analyst Deborah Ong likes Far East Hospitality Trust (FEHT) as it believes operational upside has yet to be priced in, and rates it “buy” with a fair value of 73.5 cents.
Ong also favours Hotel Properties Limited, rated “buy” with a $4.74 fair value, given its attractive valuations.
“After several years of RevPAR declines, RevPAR growth for SG hotels appears to have finally turned a corner. 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,” says OCBC in a report on Monday.
Units in FEHT last traded at 66 cents, and Hotel Properties at $3.73, before the midday trading break.
