Luxury hotels worst-hit this 1Q13

Overall weak first quarter for hospitality.

In a Singapore flash note, DBS Vickers said that luxury hotels saw the largest drop in RevPARs. Other sub-segments like the mid-tier and economy hotels showed some resilience, but still their yoy performance dipped, suggesting hospitality's general weakness compared to the same period last year.

Here's more from DBS:

We note that Singapore Tourism Board (STB) has released the latest available hotel statistics for Feb13. While it seems fairly dated, it does gives us an insight into the trends to be reported by the hospitality players in the coming days.

Singapore Tourism Board statistics indicate a weak start to 1Q13: Luxury hotels are the worst hit. Industry room revenue was S$427.8m, which was a 7.2% drop y-o-y. Occupancy rates remained fairly stable at 84-86% but average daily rates (ADRs) were weaker at c.2.7% y-o-y at S$252.2/night. RevPAR was 3.1% lower y-o-y at S$215/night. Occupancy rates remained fairly firm but performance on a sub-sector basis varies, with the luxury hotels seeing the largest drop in RevPARs (up to -14% y-o-y) while the other sub-segments (midtier, upscale and economy) hotels showing more resilience (RevPAR performance range between -3% to -1% fall y-o-y). We note that the most resilient sub-segments were the mid-tier and economy hotels which saw marginal weakness on a y-o-y basis.

We will like to highlight that this is not unexpected and hoteliers in the previous results season back in Jan13 had given indication of weaker operational trends at the start of 2013 and we have been anticipating a weak start to the year. We believe the operational weakness seen in the first two months of 2013 was due to (i) the longer break owing to the festive Chinese Lunar New Year (CNY) being in Feb13 ( vs Jan12 ) which resulted in corporate travellers delaying their business trips till after the festive period, (ii) a strong start in 2012 "distorting" the y-o-y performance due to a strong line-up of conferences and events, especially the Singapore Airshow , held in Feb12, helped to boost accommodation demand a year back, (iii) the strong S$; travellers have remained more conscious on their choices of hotels and have been "trading down" to cheaper accommodation choices.

In an attempt to remove the effects of the seasonal impact due to the festive period, we compare the performance of the first two months of 2011 (note that CNY was also in Feb) and noted that the hotel sector's performance remained stronger with most sub-sectors seeing higher RevPARs to the tune of 0-12%.

What does it mean for hoteliers' results

This suggests that hoteliers (CDL Hospitality Trust, FarEast Hospitality Trust, Ascott REIT, Global Premium Hotels) that are due to report their first quarter results in the coming days aren't likely to show good results. However, we believe this should already be expected by the market given the fairly clear guidance by various management teams back in Jan13. We believe that a more important datapoint to watch out for is whether there is a recovery in accommodation demand post the festive period, which seems to be the case, based on our conversations with the various hoteliers. Nevertheless, while most hospitality S-REITs are expected to see weaker y-o-y results, we believe that the weaker operational performance of CDL Hospitality Trust (CDREIT)'s Singapore hotels will be buffered by contribution of Angsana Velavaru (acquired at a yield of close to c.10% and completed in Jan13)