Brokers' take

OUE HOSPITALITY TRUST | BUY

TARGET PRICE: $0.76

APRIL 3 CLOSE: $0.69

RHB, APRIL 3

We upgrade OUE Hospitality Trust (OUEHT) to buy (from Neutral), as we see sector headwinds receding in 2H17 and catalysts emerging.

Key drivers ahead are: 1. Opening of new Changi Airport Terminal 4 in 2H17; 2. Hotel supply headwinds tapering off post 2018; 3. Valuations remain attractive with FY17F yield of 7.3 per cent and P/BV of 0.9x. We expect a potential turnaround at the hotel segment in 2018, with supply pressures abating.

Construction of Changi Airport's Terminal 4 (T4) has been completed and is slated to open early 2H17.

One of the direct beneficiaries of this new terminal would be OUEHT's Crowne Plaza Changi Airport Hotel (CPCA), being the only hotel located within the airport premises.

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KEPPEL DC REIT | BUY

TARGET PRICE: $1.39

APRIL 3 CLOSE: $1.195

OCBC INVESTMENT RESEARCH, APRIL 3

Keppel DC Reit (KDCReit) is poised to benefit from the solid growth potential of the data centre industry.

For the key cities which KDCReit has exposure to, we note that new demand is projected by BroadGroup Consulting to grow at a CAGR of between 4.7 per cent (Frankfurt) to 14.7 per cent (Dublin) from 2016 to 2021.

KDCReit has four major leases which are expiring in FY17. From our understanding, management has secured agreements in principle to renew three of the four leases.

For the fourth, which is at its Basis Bay Data Centre in Malaysia, we expect the tenant to extend the lease.

Thereafter, there are minimal lease expiries in FY18 (0.6 per cent of lettable area), FY19 (2.1 per cent of lettable area) and FY20 (1.6 per cent of lettable area).

This makes KDCReit one of the most defensive Reits within the S-Reits space, with a portfolio WALE of 9.6 years, in our view.

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SINGAPORE REITS | OVERWEIGHT

CIMB, MARCH 31

From our recent marketing with investors, we sense that investors are light on S-Reits.

Given that the valuation gap between developers and S-Reits has narrowed, we expect investors to take some profit from the cyclical sectors which have done well and find a temporary haven in S-Reits.

We shift our sector posture from Underweight to a tactical Overweight. Reits could re-rate on improved sentiment due to a broader physical market recovery in 2018.

The momentum of rental reversion turning positive could also result in sector yield compression.

Our sub-sector preference is unchanged. We expect business parks to first recover, followed by office, retail and warehouses, then hotels.

Balanced against market expectations, however, we found that the market has priced in the recovery of office, retail and industrial to some degree.

If hotels were to recover by 2018, then the sub-segment could deliver the most alpha.

Disclaimer: All analyses, recommendations and other information herein are published for general information. Readers should not rely solely on the information published and should seek independent financial advice prior to making any investment decision. The publisher accepts no liability for any loss whatsoever arising from any use of the information published herein.