STB March tourist arrivals posted a 16.5% YoY growth, on the back of an 83.7% growth in Chinese arrivals and a 12.5% growth in Indonesian arrivals. This brings the total YTD arrivals up to 4.15m, which is 13.8% higher than the corresponding period last year. The strong growth is contrary to what we expected, given the REVPAR declines for some of our assets and feedback from companies under coverage.

For the Jan through Mar period, REVPAR clocked a 1.1% decline YoY to S$204 due to a 1.6% drop in average room rates. YoY REVPAR growth for March alone was 0.1% for luxury, -5.2% for Upscale, -3.1% for Mid-Tier, and -1.5% for Economy.

Given the strong uptick in Chinese arrivals, we see potential for REITs with hotel assets popular with Chinese tourists. North Asian tourists made up 22% of OUEHT’s customers (in terms of room nights occupied) and 23% of FEHT’s revenue. We have a NEUTRAL rating on the sector. Our top pick is Ascott Residence Trust (ART) with a BUY rating and fair value of S$1.29.

Source: OCBC Research - 19 May 2016