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Hotel sector hitting inflection point: Time to check into hospitality REITs

Goola Warden
Goola Warden8/7/2017 08:00 AM GMT+08  • 8 min read
Hotel sector hitting inflection point: Time to check into hospitality REITs
(Aug 7): Chong Kee Hiong, CEO of OUE Hospitality Trust (OUE-HT)’s manager, senses from his regular interaction with investors that the market is looking for an inflection point in the hotel sector. “More investors are looking into this segment and we
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(Aug 7): Chong Kee Hiong, CEO of OUE Hospitality Trust (OUE-HT)’s manager, senses from his regular interaction with investors that the market is looking for an inflection point in the hotel sector. “More investors are looking into this segment and we are getting more enquiries, and the same group of investors is seeing other hospitality players. It’s a very macro picture for these investors,” Chong says. He was speaking at a results briefing on Aug 1.

The local hotel sector has been in a slump for years as a result of a surge in the supply of rooms that outpaced demand. At end-2016, there were 63,850 hotel rooms in Singapore, up 25% since end-2012. In 2013, visitor arrivals grew 7.1% y-o-y to 15.6 million. Visitor arrivals fell slightly to 15.1 million the following year, and then stayed flat at 15.2 million in 2015. Last year, visitor arrivals rebounded 7.8% to 16.4 million. The key metric tracked by hotel sector watchers is revenue per available room (RevPAR). For the sector, this has fallen steadily from $225 in 2012 to about $200 this year.

Now, the pace at which the stock of hotel rooms is growing has slowed significantly. This year, a further 2,559 rooms are likely to be added, representing growth of 4%. In 2018, only 1,127 rooms are expected to be added, representing growth of just 1.7%. In 2019, 1,248 rooms are expected to be added, equivalent to growth of 1.8%. Meanwhile, the pace of visitor arrivals is growing at a moderate pace. According to the Singapore Tourism Board, visitor arrivals for the first five months of this year were up 3.6% from the same period last year. For the full year, STB is forecasting growth of up to 2%, or 16.7 million arrivals.

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