Hospitality REITs to fund more acquisitions with debt in 2018

But cash flow and tourist spending are expected to rise.

Singapore's hospitality REITs might become more debt-ridden from acquisitions, but they are expected to have stronger cash flow as well, Fitch Ratings said.

According to a report, Fitch projects the sector's overall leverage to rise next year but also remain healthy and well below 40%. Ascott Retail Trust (ART) is especially expected to have more acquisitions.

Industry research and Singapore government data point to a lower supply of new hotel rooms in 2018, which will help to ease the oversupply of hotel rooms next year.

Only over 1,100 new hotel rooms are expected to be completed next year, down from around 2,500 this year, and a peak of more than 4,100 in 2015.

"This, combined with our expectations that visitor arrivals will remain stable and tourism spend will remain robust, underpins our stable sector outlook on Singapore hospitality REITs next year," said Fitch Ratings director Hasira De Silva.

Fitch also expects the pace of growth in Singapore visitor arrivals to moderate in 2018 from a higher base this year.

Visitor arrival growth could slow to around 2-3% in 2018, compared to the 7.5% growth in 2016.

However, tourism spending, which increased 10% in H1 to $12.7b, will likely remain strong, driven by favourable economic prospects in key inbound markets such as China.

"The increased influence of online travel agencies in hotel bookings and the growth in the sharing economy may prove disruptive to Singapore hotels in the long term, while current regulations and a high mix of corporate demand limit the near-term impact," de Silva commented.