Industry Outlook Hospitality Real Estate (Singapore)

Transcription

1 Refer to important disclaimers at the end of this report DBS Group Research Asian Insights Office 16 May 2017 Overall Outlook Difficult operating conditions in 2017 Following a weaker-than-expected decline in revenue per available room (RevPAR; 5% y-o-y fall to S$199 versus our projection of 4% drop) in 2016, largely on the back of softer demand (visitor days rose 22% y-o-y compared to our 3% estimate), we believe 2017 will remain a difficult year for hoteliers This is due to the large increase in new room supply (3,767 rooms, equivalent to 6% of existing supply) In addition, we project demand to remain below that of supply, with visitor days growing at 5%, slightly faster than the 4% increase in tourist arrivals The greater uptick in visitor days is attributed to a slight increase in the average length of stay due to an increase in proportion of visitors from countries with a longer average length of stay Moreover, the higher-yielding corporate demand is expected to remain sluggish, hence average daily rates (ADR) will likely fall 4% y-o-y to S$227 In combination with a dip in occupancy to 837% from 842%, we project 2017 RevPAR to fall 4% y-o-y to S$190 Better than expected start to the year For the first two months of 2017, RevPAR rose 06% y-o-y, which is above our expectations of a 4% y-o-y decline for the whole of 2017 The outperformance stems mainly from strength in the Luxury segment which recorded an 84% y-o-y increase In addition, the Economy segment recorded a 03% y-o-y increase in RevPAR for January to February Meanwhile, the Upscale and Mid-Tier sectors, reported declines of 13% and 58% in RevPAR respectively The overall improvement in industry wide RevPAR was largely attributed to a 19% uplift in occupancy which offset the 16% decline in ADR The rise in occupancy was on the back of 34% increase in visitor arrivals (mainly boosted by 155%, 68% and 47% y-o-y increases from China, India and Australia which offset 06% and 24% declines from Indonesia and Malaysia), and a dip in available room nights (potentially related to renovation works at Raffles Hotel) Nevertheless, price competition remains an industry issue with hoteliers lowering room rates to stimulate occupancy Table 1: 1Q17 performance (Jan-Feb 2017) 1Q16* 4Q16 1Q17* q-o-q y-o-y Industry 844% 816% 863% nm 19% Occupancy Industry average nm -16% daily rate (S$) Industry RevPAR nm 06% (S$) Tourist arrivals 2,747,222 3,979,235 2,841,193 nm 34% Luxury RevPAR nm 84% (S$) Upscale RevPAR nm -13% (S$) Mid-Tier RevPAR nm -58% (S$) Economy RevPAR (S$) nm 03% 1 Improvement in industry wide RevPAR largely on the back of an increase in occupancy 2 Luxury was the best performing category in 1Q17, with RevPAR jumping 84% y-o-y * For January to February STB has not released March 2017 statistics Source: Singapore Tourism Board, DBS Bank Page 1

2 Demand Higher seat capacity of 4% in 1H17 underpins growth in overall tourist arrivals Based on data from Centre for Asia Pacific Aviation (CAPA), seat capacity between Singapore and the rest of the world is projected to increase by 4% y-o-y in the first half of 2017 This is faster than the 31% y-o-y increase in capacity in 2016, which had translated to a 77% jump in overall tourist arrivals into Singapore For third quarter 2017, seat capacity is projected to rise by 5% Thus, we believe the robust growth in seat capacity supports our forecast for a 4% increase in tourist arrivals in 2017 Moderating in number of Chinese tourists Supporting our estimated 4% growth in overall tourist arrivals in 2017 is a 1 projected increase in Chinese arrivals (second largest source market at 18% share) While this is slower than the 22% and 36% increases in 2015 and 2016 respectively, we believe this pace of growth is more sustainable The large jumps in visitors from China in 2015 and 2016 were related to a recovery following the 24% fall in 2014 which was caused by one-off political/aviation disasters For the first two months of the year, Chinese arrivals have increased by 155% y-o-y Modest increase in Indonesian arrivals We have projected a 35% increase in arrivals from Indonesia, following a 59% rebound in 2016 The expected increase in arrivals is underpinned by a 31% increase in seat capacity between Indonesia and Singapore in first half 2017 and 13% in third quarter 2017 For the first two months of the year, visitor arrivals from Indonesia was marginally down by 06% There is some downside risk to our estimates if the soft start continues for the rest of the year Competition from other markets Singapore faces increased competition from other tourism markets through a variety of factors which include easier access to other countries due to the relaxation of visa restrictions, eg multiple entry visas for Chinese visitors into Japan; devaluation of the other regional currencies, potentially making it cheaper to visit other countries compared to Singapore, eg a weaker Korean won and Japanese yen; and Singapore already having a high market share, eg Singapore accounts for 38-39% of total Indonesian outbound travel Slight increase in average length of stay The overall average length of stay has fallen from 361 days in 2015 to 343 days in 2016 A key reason has been Chinese visitors spending less time in Singapore (299 days versus 377 days in 2015) The fall in the average length of stay for the Chinese has also been due to some Chinese visitors breaking up their trip to Singapore into two parts with a break in nearby Malaysia In addition, the decline in the overall average length of stay has also been impacted by falls from tourists in other key source markets such as Indonesia (273 days versus 281 days in 2015) and India (627 days versus 646 days in 2015) This may be due to visitors from these countries having already visited Singapore on prior occasions, thus cutting back on their time in Singapore However, we project a slight uptick in the average length of stay to 344 days this year, largely owing to an increase in proportion of visitors from countries with longer average length of stay such as India Thus, this translates to a 5% growth in visitor days Supply Pressure from new room supply As a consequence of hotel openings which were originally scheduled for 2016 shifted to 2017, such as Intercontinental Robertson Quay and Sofitel at Tanjong Pagar Centre, supply for 2017 now stands at 3,767 rooms This is equivalent to a 6% increase in supply, up from 4% in 2015 However, supply pressures should ease from 2018 onwards when only a 1% increase in supply is projected The tailing off of supply is a result of the Singapore government not releasing new land for hotel development over the past three years Supply growth in 2017 to mainly come from Central Business District (CBD) and Orchard In 2017, the majority of new supply will be concentrated in Orchard (1,502 rooms, equivalent to c13% of existing Orchard inventory, from Novotel and Ibis Singapore on Stevens, and Ascott Orchard) and the CBD area (c748 rooms from hotels such as JW Marriot, Sofitel Singapore Tanjong Pagar, and Grand Park City Hall) These two areas represent close to 6 of total supply for 2017 Page 2

3 Greater share of upscale and luxury hotels in 2017 For 2017, approximately 21%, 33%, 26% and 19% of new room supply will come from the Economy, Mid-Tier, Upscale and Luxury segments respectively With a larger proportion of new rooms added in the Upscale and Luxury segment in 2017 (46% in 2017 versus 37% in 2016), we believe there is potential for better pricing discipline compared to 2016 given constraints on these upper-tier brands to cut rooms rates without affecting their brand status This may help mitigate the drop in ADR Forecasts Still a weak 2017 with recovery only in 2018 The carryover of new hotels which were originally scheduled to open in 2016 into 2017 has resulted in a 6% growth in new room supply Hence, 2017 will be a challenging year As visitor days is only projected to grow by 5%, we believe occupancy will drop to 837% in 2017 from 842% in 2016 With pressure to fill rooms and corporate demand expected to remain low, we expect price discounting to persist, resulting in ADR falling to 4% y-o-y to S$227 This would then translate to a 4% decline in RevPAR to S$190 However, going into 2018, we expect the market to recover as supply growth is projected to increase by only 2% y-o-y, below the 4% growth in demand that we have estimated Thus, for 2018, we project RevPAR to bounce up 3% y-o-y Key Charts Hospitality Sector Chart 1: Growth in overall visitor arrivals but RevPAR declined in 4Q16 65% y-o-y growth in tourist arrivals 55% 45% 35% 25% 14% 15% 11% 6% 5% 4% 3% 3% 5% -1% -5% 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17-15% -6% Indonesia China Malaysia India Australia Total 1 Tourist arrivals jumped 34% in the first two months of 2017 led by China (+155%), India (+68%) and Australia (47%) 2 Visitor days grew at a more modest 2% y-o-y as the average length of stay continues to decline Industry RevPAR (S$) Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec However, owing to slight dip in supply (likely due to some temporary stock taken out of the luxury sector) RevPAR for the first two months of 2017 rose 06% y-o-y Source: Singapore Tourism Board, STR Global, DBS Bank Page 3

4 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Industry Outlook Chart 2: Uptick in overall airline capacity points to sustained recovery in tourist arrivals y-o-y growth 15% 1 5% -5% -1 5% 4% 1% -1% 6% 5% 5% 4% 4% 4% 3% 3% 4% 4% 3% 2% 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17-1% -1% -2% -6% -5% -6% Total Seat Capacity 14% 11% Total visitor arrivals 5% 1 Historically, there is a positive correlation between seat capacity growth and inbound tourist arrivals 2 Inbound tourist arrivals have recovered following a reduction in seat capacity in second half 2014 and first half Airline seat capacity into Singapore is projected to grow by 4% y-o-y in first half 2017 and 5% in 3Q17 which underpins growth of tourist arrivals into Singapore We project 4% growth in visitor arrivals for 2017 Source: Centre for Asia Pacific Aviation, Singapore Tourism Board, Bloomberg Finance LP, DBS Bank Chart 3: Modest growth from Chinese visitors y-o-y growth Oct13 - New Chinese tourism laws Mar14 - MH370 incident May14 - Thai military coup 1 Large bounce in number of Chinese visitors over following the downturn in 2014 as Chinese visitors avoided Southeast Asia due to political instability in Thailand, ban on shopping tours and MH370 incident 2 Expect growth in visitors from China to continue but at a slower rate going forward We project a more sustainable 1 growth in 2017 Source: Singapore Tourism Board, DBS Bank Page 4

5 Chart 4: Improvement in seat capacity between Indonesia and Singapore 15% y-o-y growth 1 5% -5% -1-15% -2-25% Total ID-SG ID-SG excluding Jakarta Indonesia arrivals 1 Large falls in visitor arrivals from Indonesia in 2014 and early 2015 due to significant cut in seat capacity between Indonesia and Singapore, as airlines (especially low cost carriers) focused on reducing losses 2 As airlines are seeking to grow the market again, as demonstrated by an increase in seat capacity over the next few quarters, we believe the recovery in Indonesian arrivals should continue largely from the secondary cities (ex Jakarta) Source: Centre for Asia Pacific Aviation, Singapore Tourism Board, Bloomberg Finance LP, DBS Bank Chart 5: Uptick in arrivals not translating to significant growth in visitor days y-o-y growth % % 46% 56% % % 77% % 22% M % -4-3 Visitor arrivals (LHS) Visitor days (LHS) Average length of stay (RHS) days Despite the 77% increase in total visitors arrivals into Singapore in 2016, visitor days ie total length of time spent in Singapore only rose 22% 2 The more modest growth in visitor days was due to a decline in the average length of stay from 361 days in 2015 to 343 days for The fall in the average length of stay was caused by an increase in the number of Chinese visitors on tour groups, typically staying for only 1-2 days 4 The trend of falling average length of stay continued in 2M17, with visitors days (+2% y-o-y) lagging visitor arrivals (+34% y-o-y) Source: Singapore Tourism Board, Bloomberg Finance LP, DBS Bank Page 5

6 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 Industry Outlook Chart 6: Increased competition from other tourism markets (2016 inbound tourist arrivals) y-o-y growth 4 36% 3 Indonesia China 37% 26% 32% 28% 1 Increased competition for Chinese tourists from countries such as Japan, Korea and Australia % 1 6% Singapore Thailand 12% 12% -7% Hong Kong Macau South Korea 17% 14% 6% -16% Taiwan Japan Australia 2 Singapore's larger share of Chinese tourists likely due to Singapore Tourism Board s success in promoting Singapore as a single destination, following weaker growth in the prior year 3 General upturn in Indonesian outbound travel but Singapore is lagging behind growth in other markets such as South Korea and Japan Source: CEIC, Singapore Tourism Board, Bloomberg Finance LP, DBS Bank Chart 7: Recent FX volatility in regional currencies a potential headwind 15% Winners versus SGD - IDR, AUD, Avg 1 5% -5% IDR AUD Avg INR MYR 1 Recent weakness in IDR, AUD and CNY versus SGD a potential headwind -1-15% Losers versus SGD - MYR, INR, CNY CNY AUD CNY INR MYR IDR Top 5 weighted average Source: CEIC, Singapore Tourism Board, Bloomberg Finance LP, DBS Bank Page 6

7 Chart 8: Opening of some hotels delayed from 2016 to 2017 Rooms 75,000 70,000 1% 2% 6% 375 1,462 65,000 63,518 3,767 60,000 55,000 50,000 45, F 2018F 2019F Hotel rooms Expected net additions 1 Delays in the completion of several hotels in 2016 results in a 6% jump in new room supply in Potential recovery in the hotel market when supply eases from 2018 onwards as the government has limited the release of new land for the development of new hotels over the past three years Source: CDL Hospitality Trust, Singapore Tourism Board, DBS Bank Chart 9: More supply in Singapore River in 2016, switching to Orchard and CBD areas in 2017 Number of rooms 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1, , Bras Basah/Bugis CBD Orchard Singapore River Others Total 1 For 2017, the majority of supply will come from Orchard and CBD areas This is in contrast to 2016 which saw an increase in supply from the Singapore River and outside the core city centre regions Source: CDL Hospitality Trust, Singapore Tourism Board, DBS Bank Chart 10: Majority of supply growth in 2016 coming from the Mid-Tier category Number of rooms 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1, Economy Mid-Tier Upscale Luxury Total For 2017, there is greater share of new rooms opened in the luxury and upscale category which may result in more pricing discipline, at least in the upper tiers 2 However, price discounting in the lower tiers will remain intense given still large growth in room supply in 2017 Source: CEIC, Singapore Tourism Board, DBS Bank Page 7

8 Chart 11: RevPAR to remain weak in 2016 and 2017 with recovery from 2018 y-o-y growth % 4 3% 2 0 1% 7% 8% 4% 2% 6% 4% 5% 4% 4% 3% 2% 1 The year 2017 to remain challenging due to a 6% growth in supply with recovery only occurring in 2018/19 when supply pressures ease 2 We project a 4% decline in RevPAR in 2017 before a 3% rebound in % -2% -3% -5% -4% -5% F 2018F Visitor Arrivals Visitor Days Room supply RevPAR Source: CDL Hospitality Trust, Singapore Tourism Board, DBS Bank Page 8

9 Appendix Supply of new rooms Year of opening Hotel Net room addition 2017 Villa Samadhi Aqueen Hotel Little India The Ascott Orchard Singapore The Patina Capitol Singapore Laguna Dusit Thani Ibis Singapore on Stevens Premier Inn Singapore Destination Singapore Beach Road (former Premier Inn Singapore) Novotel Singapore on Stevens InterContinental Singapore Robertson Quay (Gallery Hotel after refurbishment) Sofitel Singapore City Centre Hotel (Tanjong Pagar Centre) Park Hotel Farrer Park Courtyard Marriott at Novena YOTEL Orchard Road Andaz Singapore (DUO Project) Duxton Terrace (formerly Murray House) Duxton House (formerly Blakes) Grand Park City Hall Aqueen Hotel Geylang China Street Aqueen Hotel Lavender (Additional rooms) Outpost Hotel Sentosa & Village Hotel Sentosa Village Hotel Sentosa The Clan Yotel Changi Jewel THE EDITION BY Marriott 190 Source: CDL Hospitality Trust, Singapore Tourism Board, DBS Bank Source markets for Singapore tourist arrivals (2016) Europe 11% US 3% Others 9% South Korea 3% Japan 5% Vietnam 3% HK 3% Thailand 3% Philippines 4% Australia 6% Indonesia 18% India 7% Source: Singapore Tourism Board, DBS Bank China 18% Malaysia 7% Page 9

10 Top 5 markets and overall tourist arrivals Indonesia China Malaysia India Australia Overall Total Jan , ,548 86,193 73, ,584 1,252,608 Feb , ,011 82,408 60,016 65,009 1,188,818 Mar , , ,929 70,302 70,708 1,201,648 Apr , ,784 90,515 84,041 83,497 1,208,624 May , , , ,511 73,965 1,222,836 Jun , , , ,773 82,755 1,184,747 Jul , , ,347 83,806 97,583 1,519,233 Aug , ,122 88,834 77,137 83,063 1,445,062 Sep , ,929 93,334 69,846 97,071 1,131,976 Oct , ,649 88,338 86,649 96,340 1,246,947 Nov , , ,214 88,350 76,369 1,203,992 Dec , , ,551 87, ,624 1,424,978 Jan , ,150 87,208 81, ,073 1,412,123 Feb , ,926 85,850 64,702 61,900 1,335,099 Mar , ,230 98,135 78,859 78,701 1,406,607 Apr , ,560 97,070 94,578 93,320 1,393,975 May , ,089 92, ,987 64,175 1,357,546 Jun , ,614 91, ,027 77,805 1,270,542 Jul , , ,397 87, ,689 1,622,417 Aug , ,556 81,656 80,980 78,888 1,481,908 Sep , ,229 93,519 75,079 92,211 1,144,143 Oct , ,185 92,736 94,649 85,395 1,237,675 Nov , , ,547 90,734 73,308 1,235,428 Dec , , ,896 94, ,849 1,506,132 Jan , ,797 84,504 80, ,926 1,480,420 Feb , ,958 84,956 75,903 71,413 1,360,773 Source: Singapore Tourism Board, DBS Bank Hotel occupancy Industry Average Luxury segment Upscale segment Mid-Tier segment Economy segment Jan % 848% 836% 829% 755% Feb % % 847% 757% Mar % 857% 871% % Apr % 827% 826% 809% 779% May % 815% 833% 835% 812% Jun % 842% 853% % Jul % 901% 913% 912% 862% Aug % 922% 926% 926% 871% Sep % 845% 832% 764% Oct % 899% 891% 899% 809% Nov % % 796% Dec % 854% 814% 828% 748% Jan % 851% 846% 853% 745% Feb % 884% 874% 866% 743% Mar % 848% % Apr % 844% 867% 868% 816% May % 821% 837% 844% 815% Jun % 813% 799% 816% 785% Jul % 902% 918% % Aug % 894% 898% 835% Sep % 844% 821% 833% 745% Oct % 827% 818% % Nov % 815% 844% 849% 74 Dec % 801% 823% 799% 786% Jan % 871% 862% 821% 756% Feb % 881% 913% 911% 816% Source: Singapore Tourism Board, DBS Bank Page 10

11 Hotel average daily room rate (S$) Industry Average Luxury segment Upscale segment Mid-Tier segment Economy segment Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Source: Singapore Tourism Board, DBS Bank Hotel revenue per available room (S$) Industry Average Luxury segment Upscale segment Mid-Tier segment Economy segment Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Dec Jan Feb Source: Singapore Tourism Board, DBS Bank Page 11

12 We Cover Ascendas Hospitality Trust Ascott Residence Trust CDL Hospitality Trust Far East Hospitality Trust OUE Hospitality Trust Our In-House Experts Derek Tan Mervin Song, CFA Please note that DBS Bank Ltd may have research coverage in the companies mentioned in this industry report, that have been produced prior to or subsequent to its publication Please refer to the links below for the latest specific equity research reports published on below-mentioned companies and the accompanying disclaimer/disclosure of DBS interest in the companies mentioned in the respective reports Page 12

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