According to STB’s latest report, visitor arrivals jumped +9.1% YoY in Jun 2017 and are up +4.5% YoY for 1H17. Correspondingly, visitor days was up +8.7% YoY in Jun and +3.5% YoY for 1H17. Industry hotel RevPAR was up 0.4% YoY for 1H17.

For the same period, in terms of hotel tiers, Economy RevPAR posted the strongest performance with +4.6% YoY growth followed by Upscale (-0.9% YoY), Luxury (-1.3% YoY), and Mid-Tier (-2.6% YoY). This is generally consistent with the latest set of quarterly results.

Recall that for the REITs under our coverage, 1H17 hotel RevPAR growth ranged from -3.0% to +0.9% YoY with Upscale assets posting a more resilient performance relative to the Midtier assets. We believe the positive momentum in leisure demand will continue for the latter half of the year, though we are less certain on the future strength of the corporate environment.

Though corporate optimism seems to have picked up, geopolitical uncertainties and expensive asset prices may continue to weigh on business budgets, especially for serviced residences. In light of this, we see OUE Hospitality Trust’s (OUEHT) leisure-focused Mandarin Orchard Singapore and its conveniently located Crowne Plaza Changi Airport as being particularly well-poised to benefit from the growing visitor arrivals.

Our top pick within the hospitality REITs sector remains OUEHT [BUY; FV: S$0.82] given the value it offers at undemanding price levels. Maintain NEUTRAL on the hospitality sector.

Source: OCBC Research - 6 Sept 2017