Singapore REITs - OCBC Investment 2018-07-31: Increase Defensiveness Among Defensives

Singapore REITs - OCBC Investment Research 2018-07-31: Increase Defensiveness Among Defensives FRASERS CENTREPOINT TRUST SGX:J69U FRASERS LOGISTICS & IND TRUST SGX:BUOU KEPPEL DC REIT SGX:AJBU MAPLETREE NORTH ASIA COMM TR SGX:RW0U FAR EAST HOSPITALITY TRUST SGX:Q5T

Singapore REITs - Increase Defensiveness Among Defensives

  • Weaker outlook for hospitality REITs.
  • Seek more defensive shelter.
  • Switch to FCT, FLT, KDCREIT and MAGIC.



Tempering our expectations for hospitality REITs

  • We have pushed back our expectations for a pick-up in Singapore hotels’ RevPAR from this year to early 2019, following the latest set of results. 2Q18 hotel RevPAR growth came in at -0.5% y-o-y for OUE Hospitality Trust (OUEHT) and -0.9% y-o-y for CDL Hospitality Trusts (CDLHT). Management feedback regarding the 2Q performance highlighted
    1. ongoing competition from 4Q17’s new room supply,
    2. the Trump-Kim summit which disrupted corporate plans and affected the visa issuance of corporate travellers/tour groups and
    3. two public holidays that fell mid-week.
  • Beyond the one-off occurrences mentioned above, we are wary that the ongoing ramp-up at the new hotels will continue to interfere with attempts to increase Average Daily Rates (ADRs) for longer than expected. Compared to its peers, Far East Hospitality Trust (FEHT) posted a surprisingly strong 6.9% RevPAR increase on the back of better occupancy as well as higher ADRs.
  • Within the hospitality sub-sector, we favour FEHT the most given that it stands to benefit from the low base effect of poor operational results in FY17.



~ SGinvestors.io ~ Where SG investors share

Hospitality: Looking at relatively muted DPU growth for 2H18?

  • There are other REIT-specific reasons to expect more muted DPU growth from hospitality REITs under our coverage. For instance, OUEHT faces a high 2H17 RevPAR base to surpass and a lack of income support for its Crowne Plaza Changi Airport. We also expect CDLHT’s New Zealand and Maldives assets to be a drag in 2H18.
  • On the other hand, Ascott Residence Trust’s portfolio’s wide geographic diversification makes it less volatile operation-wise, both in terms of upside and downside. Given this relatively muted DPU growth outlook for 2H18 as well as the rising interest rate environment, we find this sub-sector less attractive than before in terms of valuations.


Switch to more defensive names






Wong Teck Ching Andy CFA OCBC Investment Research | https://www.iocbc.com/ 2018-07-31
SGX Stock Analyst Report BUY Maintain BUY 2.490 Same 2.490
BUY Maintain BUY 1.210 Same 1.210
BUY Maintain BUY 1.540 Same 1.540
BUY Maintain BUY 1.420 Same 1.420
HOLD Maintain HOLD 0.675 Same 0.675



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