OCBC Investment Research initiated coverage of Singapore's hospitality real estate investment trust sector with an 'overweight' rating, and said it preferred CDL Hospitality Trusts to Ascott Residence Trust.
CDL units were up 0.8 percent at S$1.94 on Monday and have risen nearly 25 percent so far this year. Ascott units were flat at S$1.185 and have gained nearly 23 percent since the start of the year.
Singapore's buoyant hotel industry has been the key driver for CDL, whose six hotels in the city-state accounted for 77 percent of its 2011 fiscal year gross revenue, OCBC said. It has a 'buy' rating and a S$2.04 target price on CDL.
OCBC estimated that for 2012-2015, the demand for hotel rooms in Singapore will grow at 6.4 percent per annum, outstripping the hotel rooms supply growth projected at 3.7 percent per annum over the same period.
It said CDL has stronger potential growth profile and a gearing of 25.6 percent, lower than Ascott's 39.2 percent. OCBC expects CDL to make an acquisition within the next one year, either in Singapore or potentially higher-yielding markets abroad.
For Ascott, OCBC said despite the economic problems in Europe, income from the trust's assets in the region is "reasonably resilient", underpinned by its master leases and management contracts.
OCBC has a 'buy' recommendation and S$1.23 target price on Ascott.
Reporting by Eveline Danubrata in Singapore; eveline.danubratathomsonreuters.com