Hospitality, in particular, has been identified as a sub-sector that is ready for a rebound in 2018 with diminishing supply threats and demand expected to pick-up, leading RHB to expect hoteliers to gain some of the pricing power.
Overall, the research house expects revenue per available room (RevPAR) to increase by 3-7% in 2018, with OUE Hospitality Trust (OUE HT) as a top “buy” pick, with an 88 cent price target, as a direct beneficiary of this improvement.
Among the industrial subsectors, the analyst has a preference for REITs with exposure to the business parks and the high-tech industrial segment, with demand-supply dynamics for business parks to remain favourable coming on-stream in 2018.
Ascendas REIT (A-REIT) therefore remains his top “buy” pick with a target price of $2.90 due to its well-diversified industrial property exposure as well as its efficient capital recycling industry.
On the other hand, Cache Logistics Trusts (CLT), although rated “neutral” at a target price of 84 cents, has been identified by Natarajan as a late-cycle play on the turnaround in the logistics sector on expectations of supply headwinds abating in 2H18.
In spite of a positive office sector outlook, Natarajan believes Singapore’s office REITs under its coverage are expected to see continued negative rent reversions in 2018 as the expiring rents are still 10-20% above current market rents. As such, Natarajan remains “neutral” on this sub-sector and recommends investors to wait for a pullback.
However, he identifies Manulife US REIT as a good proxy US economic growth for its pure-play office exposure to the rebounding US economy and its office market – which, together with the potential strengthening of favourable USD movements, should help to mitigate the impact of a rate hike, in his view.
Manulife US REIT has been rated “buy” with a price target of 98 US cents.
Meanwhile, the analyst believes the outlook for retail, RHB’s least preferred sub-sector for S-REITs, remains challenging with overall demand and sentiments on the sector expected to remain weak.
He therefore expects only well-positioned defensive suburban malls to register decent performance over the year, and recommends Frasers Centrepoint Trust (FCT), rated “neutral” at a target price of $2.24, for investors looking for retail exposure due to the upside potential from recent asset enhancements, solid balance sheet, and potential growth from acquisitions.
As at 3:14pm, shares in OUE HT, A-REIT, CLT, Manulife US REIT and FCT are trading at 84 cents, $2.70, 84 cents, 92 US cents and $2.10 respectively.
