Could hospitality REIT be a dark horse this year?

Investors are positioning for a potential recovery as supply pressures eases.

DBS Group Research highlighted the hospitality sector as a potential dark horse for this year given the expected easing supply pressures.

"Since then, we are sensing a slow basing out of the hospitality sector. Over the recent results season, the Hospitality REITs are either coming in line or being ahead of expectations and CDL Hospitality Trust (CDREIT)’s share price has jumped c.20% since the start of the year," it said.

Here's more from DBS Group Research:

With another seven months till the start of 2018, we believe investors will increasingly start to position for a potential recovery as supply pressures ease (1% new room supply versus 6% in 2017) and the Singapore hospitality market benefits from increased demand with 2018 being the biannual conference year.

Moreover, valuations for hospitality REITs remain depressed, trading at 10% discount to book value with average yield of 6.6% on cyclical low revenue per available room (RevPAR).

The hospitality S-REITs had a slow start to the year with declines in RevPAR for their Singapore portfolio (-11% to -1%).

However, DPU performance was mixed. ART and FHT reported falls in DPU largely due to dilution from recent equity raisings, while CDREIT and OUEHT registered a jump in DPU owing to the low-base effect and earnings boost from acquisitions made in the prior year.

With share prices largely stable, post results, it appears the expected weakness due to the oversupply situation in Singapore may have been priced in.