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KGI Securities has initiated an “outperform” recommendation on OUE Real Estate Investment Trust (Reit), with a 12-month target price of S$0.309.
On Friday (May 31), KGI analyst Alyssa Tee attributed the positive recommendation to OUE Reit’s strategic initiatives, strong tenant mix, diversified portfolio, and proactive management position.
She added that the trust is well-positioned for “future growth and stability in the competitive real estate market”.
The target price implies an upside of 17 per cent based on the trust’s closing price on May 30. It accounts for a terminal growth rate of 2 per cent and a cost of equity of 9.7 per cent.
In her view, enhanced strategic initiatives could meet the anticipated tourism boom in Singapore, which will be driven by improved global flight connectivity and capacity, as well as the mutual 30-day visa exemption between Singapore and China.
The 23.3 per cent year-on-year surge in revenue per available room to S$280 reflects the trust’s ability to capitalise on higher room rates amid strong demand from event attendees and tourists, the analyst noted.
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The Reit currently operates a portfolio of seven properties. An additional 255-room zero-energy hotel at Changi Airport Terminal 2 is expected to be completed by 2028, anticipated to meet “the growing demand for hospitality offerings” at the airport.
An expected rate reduction of 25 basis points in September by the Federal Reserve could also benefit the Reit. Lower borrowing costs could improve its financial flexibility and drive investor interest.
“OUE Reit’s favourable credit rating from S&P positions it well for refinancing endeavours, evidenced by the successful increase of its initial loan amount from S$540 million to S$600 million,” she added.
Units of OUE Reit traded 1.9 per cent or S$0.005 lower at S$0.265, as at 11.31 am on Monday.
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