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Industry outlook positive, but competition is increasing

Samantha Chiew
Samantha Chiew12/20/2019 07:00 AM GMT+08  • 10 min read
Industry outlook positive, but competition is increasing
SINGAPORE (Dec 20): Good news for Singapore’s tourism sector — visitor numbers rose in 2019. According to statistics released by the Singapore Tourism Board (STB) on Oct 30, there were 9.3 million visitors in the first half of the year. This represent
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SINGAPORE (Dec 20): Good news for Singapore’s tourism sector — visitor numbers rose in 2019. According to statistics released by the Singapore Tourism Board (STB) on Oct 30, there were 9.3 million visitors in the first half of the year. This represented a 1.3% increase in international visitor arrivals, compared with the first half of 2018.

Visitors spent $13.1 billion in 1H2019, 3% less than the previous year. This was led by a 13% drop in spending on accommodation, followed by a 5% fall in F&B spending and a 2% contraction in spending on sightseeing, entertainment and gaming.

However, shopping remains popular with visitors — shopping expenditure rose 2% to $2.8 billion during the six months. This is an improvement from 1H2018, which saw a 15% y-o-y drop in shopping expenditure to $2.7 billion.

Hotels doing well

Hotel occupancy has been high, STB data shows. In July, the average occupancy rate of hotels in Singapore hit 93.9%, the highest since 2005 and up from 92.4% in July the previous year.

See also: Tourists could bring in as much as $21 bil with China boost: STB

Revenue per room (RevPAR) was also the highest in four years, a trend analysts and hoteliers attribute to the fallout from the Hong Kong protests, which began in June.

“Singapore may benefit twice as much from the Hong Kong fallout, as both these destinations share similar traits,” says DBS Group Research analyst Derek Tan.

According to Colliers International Group, hotel transaction volumes in Singapore are set to reach a record amid a surge of people switching their travel plans to Singapore from Hong Kong to avoid the ongoing protests. As those demonstrations turned violent, some events — like the Global Wellness Summit — were moved here.

See also: Hilton Singapore Orchard reopens 446-room Orchard Wing

Figures from Colliers International show hospitality transaction volumes for this year amounted to $5.7 billion as at Nov 30. This is about five times more than in 2018 and the most in at least a decade.

Despite the rosy numbers, Stuart Stacy, managing director at travel data platform Adara, reckons the hotel industry is still vulnerable as “consumers now have access to other, often more affordable, options such as homestays”.

However, other accommodation options in the market, such as home sharing and co-living platforms, only compete with hoteliers for long-staying guests. This is because home sharing platforms such as Airbnb require guests to book a minimum stay of three months while serviced apartments target those staying at least a week.

There are signs the hotel industry is looking to take a stab at this market.

For example, CapitaLand business unit The Ascott launched its first co-living brand, lyf, in September. Occupying Levels 4 to 12 of Funan Mall, lyf houses 412 rooms in 279 apartments and is targeted at millennials who want both short- and long-term stays.

Mindy Teo, Ascott’s deputy managing director of lyf, told The Edge Singapore in a previous interview that the draw of co-living platforms — in comparison with regular hotels and serviced apartments — is the events organised, which encourage guests to socialise.

There were two major hospitality transactions during the year. OUE Commercial REIT acquired OUE Hospitality Trust for the equivalent of $1.515 billion (including expenses) in September in a share and cash transaction. OUEHT owns Mandarin Orchard Singapore and Crowne Plaza Changi Airport. It is now a sub-trust owned by OUEC-REIT. The second, larger transaction is Ascott Residence Trust’s merger with Ascendas Hospitality Trust, valued at around $1.9 billion, which will be completed on Dec 30.

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Jefferies analyst Krishna Guha says these transactions show that the current demand-supply outlook for the hospitality sector “is favourable as supply continues to taper and some supply is likely to be taken out, while demand is witnessing a recovery”. In addition, lower interest rates are supportive of asset values, he adds.

RHB Group Research analyst Vijay Natarajan says despite the positive tourism outlook, the hotel sector is “expected to witness a sharp slowdown in new hotel room supply (about 1% per annum compared with about 4% between 2014 and 2018)”. This, he explains, should benefit the sector both in terms of occupancy and room rates.

Attractions drawing them in

Attractions such as the Singapore Flyer, which offers unique views of the Marina Bay skyline, continue to draw tourists. Singapore Flyer operator Straco Corp reported earnings of $18.8 million for 3QFY2019, 12.1% lower than the $21.4 million a year ago. This came on the back of an 11.1% y-o-y decline in revenue to $43.1 million.

The lower revenue was mainly due to a smaller contribution from the group’s Shanghai Ocean Aquarium, but was partially offset by higher contribution from Singapore Flyer and its China-based properties Lixing Cable Car and Underwater World Xiamen.

Resorts World Sentosa (RWS) continues to be popular with visitors. It is home to attractions such as Universal Studios Singapore, S.E.A. Aquarium, the Maritime Experiential Museum, Dolphin Island and Adventure Cove Waterpark.

RWS is owned by Genting Singapore, a principal indirect subsidiary of Malaysia-listed Genting Bhd and part of the Genting Group.

In April, Genting Singapore announced additional capital expenditure of $4.5 billion to refresh and expand RWS, adding new attractions, entertainment and lifestyle offerings from 2020. In the pipeline is the addition of Minion Park and Super Nintendo World to Universal Studios Singapore. S.E.A. Aquarium will be expanded and rebranded as Singapore Oceanarium. The resort operator’s casino operations also continue to draw in tourists.

However, its earnings of $158.9 million for 3QFY2019 were 24% lower than the $210.4 million a year ago. This came on the back of a 7% y-o-y fall in revenue, mainly owing to lower contribution from the group’s gaming business, which fell 11%, or $44.2 million.

Revenue from its non-gaming business was just 1% higher y-o-y at $234.6 million. In its results statement, Genting Singapore said: “Notwithstanding a change in the international visitor arrival mix, our non-gaming businesses performed well. In the third quarter of 2019, average daily visitation to our key attractions at RWS exceeded 23,000 and our hotels [continued] to outperform industry benchmarks at an average occupancy rate of 94%.”

In a brokers’ report, RHB analyst Juliana Cai notes that mass gaming volumes were negatively affected by the increase in the casino levy for Singapore citizens and permanent residents, despite an incremental growth in foreign patrons.

However, Genting Singapore’s bid to win one of the first Japanese resort licences could be its trump card. DBS Group Research analyst Jason Sum is positive on the group’s ability to deliver on these bids, noting that it is one of the frontrunners to win the bid to develop a theme park and integrated resort in Osaka, Japan.

On the whole, RHB’s Natarajan tells The Edge Singapore: “Leisure demand should remain buoyant on the back of increased accessibility at affordable prices, STB’s marketing efforts and potentially some travel diversions [by Chinese tourists] flowing into Singapore due to Hong Kong’s current political situation.”

Retail therapy

Shopping remains the cornerstone of tourist activity here. Among others, Mapletree Commercial Trust’s (MCT) VivoCity shopping mall is benefiting from its proximity to the island resort of Sentosa.

For 2QFY2020, the manager of MCT reported distribution per unit (DPU) of 2.32 cents, 2.2% higher than the 2.27 cents in 2QFY2019. Gross revenue for the quarter rose 1.9% to $112.0 million, from $109.9 million a year ago, mainly due to higher contribution from VivoCity.

Revenue for VivoCity was $2.7 million higher than the same period last year, driven mainly by higher rental income from new and renewed leases, as well as asset enhancement initiatives completed to date, the effects of the step-up rents in existing leases and higher “other” revenue. In its results statement, the manager says it expects its portfolio to remain resilient given VivoCity’s strong positioning and consistent performance.

Analysts from OCBC Investment Research and Maybank Kim Eng agree that the trust’s retail segment will ensure that the REIT stays healthy amid an overall decline in portfolio occupancy and the trust’s acquisition of Mapletree Business City (Phase 2).

VivoCity recorded higher revenue and net property income for 2QFY2019 even though shopper traffic and tenant sales fell 2.8% and 2.0% y-o-y, respectively. Maybank Kim Eng analyst Chua Su Tye notes that stronger sales growth momentum can be expected in the upcoming quarters because of higher contribution from supermarket chain NTUC Fairprice, new F&B tenancies as well as the presence of fashion retailers such as Uniqlo. Management also noted that F&B tenancies had delivered positive reversions of 10%, and is expecting this positive trend to continue in FY2020-2021.

OCBC Investment Research says, “Sales momentum has been encouraging, and we note that VivoCity’s tenant sales for 2QFY2020 only declined marginally by 0.3% y-o-y.” Both research houses have “hold” recommendations on MCT.

Apart from VivoCity, Orchard Road continues to be a tourist haven, with many attracted to big malls such as ION Orchard, Wisma Atria and Ngee Ann City.

Starhill Global REIT’s (SGREIT) property portfolio includes 74.23% of Wisma Atria and 27.23% of Ngee Ann City. The REIT’s total share value in both properties contributed to 65.9% of its total revenue, or $31.6 million, in 1QFY2020, 0.9% lower than the previous year, mainly due to lower operating expenses for Wisma Atria Property (Retail) and its Singapore office portfolio. Tenant sales at Wisma Atria rose 12.7% on the back of a 2.8% increase in shopper traffic.

Overall revenue was 7.8% lower y-o-y at $48.0 million, while DPU was 1.7% lower at 1.13 cents. Although the REIT’s 1QFY2020 results were in line with consensus expectations, market watchers believe it lacks growth visibility.

“We see tight Orchard Road supply supporting its prime Singapore retail rents, even as growth will be tempered by lower tourist shopping spending,” says Maybank Kim Eng’s Chua in an Oct 30 report. Maybank has a “hold” call on SGREIT with a price target of 75 cents.

Analysts at OCBC Investment Research are more bullish, maintaining a “buy” recommendation on SGREIT with a price target of 81 cents. OCBC notes that while the increase in Wisma Atria’s tenant sales and footfall was “encouraging”, rental reversions remain soft. “We believe [the increase in tenant sales] was driven by the improvement in physical occupancy,” it adds.

Looking ahead

On the whole, analysts and industry experts remain positive on the outlook for the sector.

“Singapore’s tourism sector looks set to continue on its upward trajectory in international tourist arrivals. However, it will face stiff competition, not only from other regional travel hubs but emerging markets too,” says Adara’s Stacy.

He expects Asia-Pacific to continue being one of the fastest-growing travel and tourism markets in the region as the middle class grows and there is greater access to tier-2 and tier-3 cities in the larger markets.

“However, industry players can’t afford to be complacent. Much like other global markets, the expectations and preferences of consumers in the region are evolving continuously,” Stacy adds.

But Gabriel Garcia, Expedia’s global head of mobile marketing and app ecosystems, is certain Singapore will continue to be an attraction.

He says the opening of Jewel this year, which cemented Changi Airport’s status as the premier air hub in the region, and a series of large-scale infrastructure projects including the Mandai eco-tourism hub and the expansion of the two integrated resorts, will continue to drive inbound and transit tourist flows to Singapore, and further enhance its appeal as a leading tourist destination in the region.

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