Tourism is big business in Singapore. In 2011, over 13 million visitors popped into the Garden City and spent about $22 billion during their combined stay of 45 million days here. What’s more, tourism is expected to be a big growth area. There are hopes that the sector, which accounted for 4% of the country’s economy, could increase its contribution to as much as 8%.
That could augur well for Singapore’s hospitality industry, especially hotels. But which is the cheapest from an investor’s perspective?
A crude way to gauge a share’s relative cheapness is by looking at the dividend yield. A company with a high yield might be considered cheap while a business with a meagre payout could be deemed to be relatively expensive.
Currently there are around a dozen hotel-related companies listed on the Singapore market with a total market value of over S$30 billion. They range from Genting Singapore (SGX: G13), with a market capitalisation of S$18b, to Banyan Tree Holdings (SGX: B58), with hotels from Bintan to Bangkok but none in Singapore, which is worth S$479m, and budget hotel operator Global Premium (SGX: P9J), with a price tag of S$265m.
|Company||Market Cap||Dividend Yield|
|Global Premium Hotels||S$265m||5.4%|
|Banyan Tree Holdings||S$479m||1.1%|
|Stamford Land Corp||S$510m||6.9%|
|Hotel Grand Central||S$615m||4.4%|
|Ascendas Hospitality Trust||S$809m||2.2%|
|Pan Pacific Hotels||S$1,392m||1.7%|
|Far East Hospitality Trust||S$1,794m||1.9%|
|CDL Hospitality Trusts||S$1,875m||5.7%|
|Mandarin Oriental Intl.||S$2,103m||4.1%|
|Overseas Union Enterprise||S$2,802m||5.4%|
Source: Capital IQ
Genting Singapore is often overlooked as a hotel operator given that its gaming business tends to steal the limelight. Nevertheless, Genting operates six hotels at Resort World Sentosa that include Hard Rock Hotel and Crockfords Tower. But whilst Genting Singapore may have a substantial market value, its dividend yield is a rather insubstantial 0.7%.
Stamford Land Corp, which sports the highest yield of the quoted hotel operators, is headquartered in Singapore but its operations are mainly in Australia and New Zealand. CDL Hospitality Trust (SGX: J85), with the next highest yield of 5.7%, is a Real Estate Investment Trust. Its portfolio of 12 hotels includes the Orchard Hotel and Grand Copthorne Waterfront hotel in River Valley.
If you wander down Orchard Road, you can’t fail to miss the recently refurbished Mandarin Orchard, which is owned by Overseas Union Enterprise (SGX: LJ3). The company’s other hotels include Marina Mandarin, which should not be confused with Mandarin Oriental that is part of Jardine Strategic Holdings. Shares in Overseas Union Enterprise yield 5.4% while Mandarin Oriental yields 4.1%.
Hotels, especially in Singapore, can be a tangential play on the tourism industry. If you think about it, a hotel, at its most basic level, is a very short-term buy-to-let landlord whose aim is to maximise occupancy rates and revenue per available room.
With tourism in Singapore expected to grow and property prices underpinned by demand, hotels could be a proxy for not just the tourism industry but the local property market too. But tread carefully. A high yield may signify cheapness but it might also indicate an unrealistic dividend.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore Director David Kuo doesn’t own shares in any companies mentioned.