DBS Group Research analysts Geraldine Wong and Derek Tan are of the view that “sky-high rates are here to stay” for hotels in Singapore.
The analysts write in a Dec 13 report that hotel revenue per available room rate (RevPAR) is currently at 120% of 2019 levels, due to staycation demand and the return of MICE events, referring to meetings, incentives, conferences, and exhibitions.
Besides high demand, Wong and Tan say the hotel industry also saw a “robust” average daily room rate (ADR) recovery in the second half of 2022.
“We observe that room rates were in the range of about $1,000 to $2,500 per night over the F1 weekend, and we believe that we are just seeing the tip of the iceberg for MICE-led recovery.”
The analysts note that 135 MICE events were hosted in 2022, a far cry from over the 500 MICE events that the nation hosted before the Covid-19 pandemic.
They identify three themes that will support the “sky high room rates”, such as stronger MICE activity in 2023, and alongside the return of corporate travellers with deeper wallets.
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Inbound tourists are also expected to stay for longer as compared to an average of 3.36 days back in 2019.
Most notably, Wong and Tan say that China’s reopening is expected to be the catalyst for the industry in the second half of 2023, while additional supply remains generally muted with most government quarantine inventory already out in the market.
In Singapore, CDL Hospitality Trusts (CDLHT) led the recovery among local hotels. “For our Singapore hotel RevPAR tracker, we estimate that RevPAR amongst the hotel S-REITs has recovered to about 92% of pre-Covid levels in the third quarter of 2022,” Wong and Tan note.
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They point out that CDLHT posted the strongest set of results, with RevPAR surging to about 122% of pre-Covid levels in its 3QFY2022 ended Sept 30. The REITs’ prime hotels, such as W Hotel Sentosa, are well-positioned to capture both the leisure and corporate markets.
Overseas, the two analysts are of the view that the recovery trajectory that is seen in Singapore this year will see a replay in laggard markets such as Japan and China in 2023.
The further relaxation of travel in markets such as Japan and China will continue to power the reopening momentum, as well as a “second leap” of demand as Chinese tourists return to travel and spend abroad.
This is given the hotel sector’s approximately 6% and 1% exposure (by asset value) to Japan and China respectively
A Japan reopening is expected to best benefit CapitaLand Ascott Trust (CLAS), given its 19% exposure in the market.
Wong and Tan say, “we note that RevPAR from CLAS’s Japan assets remained below half of pre-Covid levels in 3QFY2022 ended Sept 30 and expect recovery starting from 4QFY2022 to bring portfolio RevPAR closer to pre-Covid levels.”
CLAS’s same-store RevPAR stood at 87% of pre-Covid levels with Japan and China being laggard markets back in 3QFY2022. Same-store RevPAR refers to the revenue from all hotels owned by the company.
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Overall, the hotel sector is expected to deliver 16% y-o-y growth in FY2023 on softer estimates but this is far stronger than the sector average at 3.0% yo-y.
Wong and Tan pick CLAS as their top sector pick for recovery in 2023, coupled its with balance sheet strength. They expect the REIT to deliver forward yields of 5.6% and 6.5% respectively in FY2023 and FY2024.
