This is where Global Premium Hotels juices its lucky charm

Its 23 hotels aren't the only assets.

According to OCBC, Global Premium Hotels (GPH) performed below our expectations in 3Q12. 3Q12 revenue increased by 8.1% YoY to S$14.9m. Gross profit margin declined 1.7 ppt versus 3Q11 to 86.6%.

Here's more from OCBC:

EBITDA margin fell 6.6 ppt to 59.8% (excluding one-off expenses of S$0.5m for 3Q12). We understand the RevPAR performance for Fragrance hotels which did not open/reopen in 2011 was basically flat YoY for 3Q12.

We have a cautious outlook for the near-term performance of the Singapore hospitality sector as a whole.

By our estimates, economy-tier hotels will see the fastest growth in hotel room supply over 2012-2014 at 7.2% p.a. (versus 7.0% pa. for Mid-tier, 3.4% p.a. for Upscale and 1.6% p.a. for Luxury).

This could apply some pressure on existing economy hotels especially given that new hotels tend to provide discounts in the first few months after opening.

However, as mentioned previously, according to hotel consultant PKF, tourist destinations generally start out attracting explorers who tend to have better financial means.

As the destinations become well-visited, a wider spectrum of visitors will demand a diversified hotel supply, i.e. more budget hotels.

Among economy hotels, GPH’s Fragrance hotels should perform relatively well, given GPH’s operational experience and market share of ~12.2% by retail value of accommodation in 2010, second only to Hotel 81 Management Pte Ltd (29.2%).

We also note that 22 of the 23 hotels run by GPH are wholly owned by the group (including one Parc Sovereign Mid-tier hotel); 19 are on freehold sites, one is on a 999-year leasehold site and two are on 99-year leasehold sites.

Given the largely freehold nature of the properties, we believe GPH can be a longer term property play.