OUE Hospitality Trust (SGX:SK7) is a SGD$1.52B real estate investment trust (REIT), which is a collective vehicle for investing in real estate that began in the US and has since been adopted worldwide as an investment asset. Real estate analysts are forecasting for the entire industry, negative growth in the upcoming year , and an overall negative growth rate in the next couple of years. Unsuprisingly, this is below the growth rate of the Singapore stock market as a whole. Below, I will examine the sector growth prospects, and also determine whether OUE Hospitality Trust is a laggard or leader relative to its real estate sector peers. View our latest analysis for OUE Hospitality Trust
What’s the catalyst for OUE Hospitality Trust’s sector growth?
Issues around rate hikes and yield changes have made investors sceptical of REITs. The capacity for these investment vehicles to absorb a rate hike should be considered, hence, factors such as lease durations and pricing power in the market would require a deeper dive. Over the past year, the industry saw negative growth of -4.80%, underperforming the Singapore market growth of 7.76%. OUE Hospitality Trust lags the pack with its negative growth rate of -69.28% over the past year, which indicates the company will be growing at a slower pace than its REIT peers. However, the future seems brighter, as analysts expect an industry-beating growth rate of over 100% in the upcoming year.
Is OUE Hospitality Trust and the sector relatively cheap?
REIT companies are typically trading at a PE of 16x, in-line with the Singapore stock market PE of 14x. This illustrates a fairly valued sector relative to the rest of the market, indicating low mispricing opportunities. Furthermore, the industry returned a similar 7.02% on equities compared to the market’s 7.94%. On the stock-level, OUE Hospitality Trust is trading at a higher PE ratio of 63x, making it more expensive than the average REIT stock. In terms of returns, OUE Hospitality Trust generated 1.70% in the past year, which is 5% below the REIT sector.
What this means for you:
Are you a shareholder? OUE Hospitality Trust’s industry-beating future is a positive for shareholders, indicating they’ve backed a fast-growing horse. However, this higher growth prospect is also reflected in OUE Hospitality Trust’s high price, suggested by its higher PE ratio relative to its peers. If you’re bullish on the stock and well-diversified by industry, you may decide to hold onto OUE Hospitality Trust as part of your portfolio. However, if you’re relatively concentrated in REIT, the OUE Hospitality Trust’s high PE may signal the right time to sell.