The time to look into hospitality REITs is now

The time to look into hospitality REITs is now

Samantha Chiew
04/08/17, 01:05 pm

SINGAPORE (Aug 4): 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.

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.

There are a number of locally listed real estate investment trusts (REITs) that own hotels. However, only two of them are pure plays on the local hotel sector.

It is probably worth mentioning at this point that hotel REITs are generally structured to earn a fixed rental component from their properties plus a percentage of revenue and NPI from those properties.

That is because hotels are extremely cyclical and REITs need to limit the downside of their DPUs in order to be attractive to yield-oriented investors.

The largest of the locally listed hotel REITs is CDL Hospitality Trusts. It has significant exposure to Australia, New Zealand, Japan and the Maldives and is continuing to expand overseas.

While malls around the world are being disrupted by online retailers, hotels have been hit by the growing popularity of Airbnb, which enables people to rent their homes — or even just their couch — to travellers.

Fortunately, Airbnb has not had any discernible impact on demand for hotel rooms in Singapore.

A more immediate concern for investors in hospitality REITs is whether anything will delay the expected improvement of the demand-supply dynamics in the local hotel sector.

Now, the pace at which the stock of hotel rooms is growing has slowed significantly.

So, how can investors gain exposure to an upcycle in the local hotel sector?

To find out more about Singapore’s hospitality REITs, buy your copy of The Edge Singapore (Issue 791) which is on sale now.

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