Singapore hotels: Reits outperform as parties return

Normally quiet Singapore hopes to become one big party island soon with the arrival of global bands including Green Day. After a two-year break due to pandemic restrictions, Formula 1 returns along with several global investment conferences. Hotel operators should have a good time too.

Accommodation prices in Singapore have hit their highest in a decade. Average hotel occupancy rates approach 80 per cent, just shy of pre-pandemic levels. After Covid-19 struck, Asia’s average hotel occupancy fell to as low as 25 per cent in 2020. Shares of Asian hotel and resort operators, including Genting Singapore and Shangri-La Asia, have gained in the past year as Singapore eased border restrictions.

This is good news for the real estate investment trusts (Reits) sector. After a poor five years, Singapore-listed hospitality Reits including Far East Hospitality Trust and CDL Hospitality Trusts, have rebounded in 2022. Another, Frasers Hospitality Trust, received bid interest from a Thai property group.

That should not surprise. Singapore’s famous F1 night race could draw its biggest turnout since it began in 2008. Local carriers Singapore Airlines and Scoot reported passenger load factors of more than 85 per cent last month, nearing pre-pandemic levels. This year’s combined hotel room revenue of $1.4bn is more than double that of last year, with many hotels pricing rooms at more than $2,000 a night.

Office properties, another large portion of local Reits, also benefit from this popularity. While Hong Kong suffers a glut of office space and an expat exodus, Singapore’s office vacancy rate is below 7 per cent as of end-June. The city-state will add as many as 20,000 finance jobs over the next five years. Rental yields, along with Reit portfolio values, should pick up.

Rising interest rates are a risk to Reits in the short term. But long-term total returns of Reits have remained positive during times of elevated rates over the past three decades. Singapore’s celebrations should more than lift the spirits of Reits’ local shareholders.