Conferences, mergers to drive hospitality sector's recovery in 2020

RevPAR growth could hit 3%, according to DBS Equity Research.

All signs are pointing to Singapore’s hospitality sector approaching a cyclical upturn in 2020, to be driven by a packed line-up of conferences, limited supply, projected recovery of RevPAR, and key M&As, according to a report by DBS Equity Research.

On average, DBS expects Singapore to deliver a RevPAR growth of 3% in 2020.

The return of conferences such as the Air show in February, along with new conferences, presents opportunities for hotel REITs to capture in 2020. The high portfolio occupancy will also allow hoteliers to raise room rates as demand grows.

“We note that portfolio occupancy rates have remained high at >90% which we believe is at the upper bound of what hotels can operate at; which means that if demand remains strong, most hoteliers are expected to start to inch up room rates, this means that the next leg of growth will come from expected hikes in average daily rate (ADR),” said DBS Equity Research analyst Derek Tan.

The muted supply growth in 2020 is expected to aid the overall recovery of the sector, whilst the potential boost from the leisure market in Q4 2019 will be a near-term catalyst to higher-than-expected RevPAR growth, he added.

Apart from stronger demand and limited supply, Tan highlighted selected mergers & acquisitions (M&A) happening within the hospitality space as impending catalysts of growth for the sector.

“The merger between Ascott Residence Trust (Ascott REIT) and Ascendas Hospitality Trust (A-HTRUST) will bring forth Asia’s largest hospitality REIT with potential indexation a catalyst for further yield compression in the medium term. In addition, the potential asset sale of Liang Court integrated development will drive NAV upside for both CDL Hospitality Trust and Ascott REIT,” noted Tan.

Additionally, the potential sales of Novotel Clarke Quay and Somerset Liang Court currently contribute c.12% and c.4% to their respective REITs’ book values would be a significant share price rerating catalyst for both stocks.

Amongst S-REITs, Far East Hospitality Trust and CDL Hospitality Trust are expected to continue benefiting from the RevPAR’s upward trend given their 100% and 62% exposure in earnings to Singapore-based serviced residences and hotels. Ascott REIT is also expected to see upside from potential acquisitions given its undergeared balance sheet supported by a recovering sector.