New entrants, online disruptors threaten to sink hospitality REITs’ margins

They’re paying online travel agents through the nose.

Singapore hospitality players are struggling to keep margins up, as weak corporate demand exacerbates the impact of online disruptors and new players.

Jefferies met with managers of Far East Hospitality Trust (FEHT) and CDL Hospitality Trusts (CDLHT) and revealed in a report that owners of new hotels are rolling out promotional pricing for corporate and group tour customers to ramp up occupancy. This is putting a pressure on room rates that established operators can charge.

That said, though, FEHT is seeing a near-full occupancy of 88%. As such, Jefferies believes that its pricing is quite competitive.

Jefferies also reports that both FEHT and CDLHT’s managements are struggling with the high-teens fees charged by online travel agents (OTAs). REITs are therefore trying to beef up booking through their own websites to counter the threat.

Moreover, on top of consolidation and tilt towards branding, distribution channels for the hotel industry are progressively evolving. Prior supply chain participants like travel agents, corporate travel desks, Global Distribution System, as well as hotels and serviced residences are being supplemented by new entrants like OTAs and shared accommodation.

Jefferies also notes that unlike a few quarters back, neither of the CDLHT nor FEHT managers underscored strong currency, cost pressures or ample supply as pain points.

Further, the government has not released any land for hotel sites since 2014 and annual growth in room supply is expected to peak out this year.

Meanwhile, Jefferies notes that while leisure demand is stabilizing, corporate demand has been soft and lacking in visibility. Corporates, especially finance and oil and gas, have become cost conscious. REITS are turning to rebranding some of its rooms and jumping into asset enhancements to entice corporate consumers.