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Tourism gets reprieve as hotels allowed to host staycation guests again

Ng Qi Siang
Ng Qi Siang • 3 min read
Tourism gets reprieve as hotels allowed to host staycation guests again
Need a getaway NOW but can't go abroad? Try a staycation!
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SINGAPORE (July 6): Singaporeans feverish with cabin fever have further reason to rejoice as the Singapore Tourism Board (STB) announced on Friday (July 3) that it would be allowing hotels to open for staycations and recreational areas for children.

Businesses in the tourism and hospitality industry are expected to be the main beneficiaries.

Measures introduced by STB include limiting occupancy to no more than one guest per 10psm in public spaces accessible to guests at any one time (excluding hotel staff). Hotels must also stagger guest time at lobbies and hotel facilities to reduce contact between guests.

Tourism has been worst hit by the Covid-19 pandemic with nearly zero tourist arrivals in recent months, says DBS Research analyst Derek Tan. Hotels have been able to generate cash flow via government-related businesses from mandatory stay home notices (SHN) for returning Singaporeans, but that has also tapered off from June 2020 as global travel ground to a halt.

F&B outlets in hotels (such as restaurants, cafes) have re-opened in phase 2, but earnings from these outlets are insufficient to compensate for the loss of room bookings. F&B revenue tends to consist of a smaller proportion of earnings for most hotels. Most hotels take in only up to 30% of their income from F&B with the exception of vacation hotels, which can take in up to 60%.

“This re-opening for staycations will be positive for all hoteliers, Ascott Residence Trust (ART), Frasers Hospitality Trust (FHT), and we believe the prime beneficiaries are the likes of Far East Hospitality Trust (FEHT) and CDL Hospitality Trusts (CDLHT) given their significant exposure in Singapore at around 100% and around 65% of revenues respectively,” Tan comments.

While Tan acknowledges that staycations have never really been a significant part of business for hospitality groups, he notes that “any business is good business” in tumultuous times such as this where business alternatives are more limited.

Since hospitality S-REITs derive renal income based on a formula consisting of a fixed component set by their respective sponsors, increased demand for staycations will help alleviate cash flow challenges for the sponsors. This will, he says, hence improve sectoral sentiment over time.

Demand in this first wave is likely to come from families (with or without children) and couples looking to satiate their desire for a vacation denied to them by the Covid crisis. Tan sees Sentosa hotels benefitting first, since these are attractive resort alternatives still confined to local shores. His reasoning, perhaps, is that Sentosa properties give customers the feeling of an offshore escape from daily life while still remaining within Singapore borders.

“CDL HT (BUY, TP S$1.30) and FEHT (BUY, TP S$0.60) will benefit given their exposure in Sentosa. For CDL HT, the prospective purchase of the W Hotel (expected to complete in July 2020) will also set the stage for a gradual recovery over time,” concludes the DBS analyst.

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