Analysts have maintained their call on Ascott Residence Trust following its plans to acquire nine properties for $318.3 million, which will be partly funded by a private placement.
The acquisition, which will be accretive at 2.8%, will help give ART a bigger proportion of assets in the so-called “long-stay” segment, deemed to provide better income stability versus short-term stays that took a big hit during the pandemic.
The nine properties consist of serviced residences, rental housing and student accommodation space. They will altogether add another 1,018 rooms to the more than 18,000 operating units ART now has across its whole portfolio.
The nine properties include Le Clef Tour Eiffel (picture), a 112-unit serviced residence in Paris, which has an appraised value of $150.4 million and has an ebitda yield of 3.7%.
Other properties are in Osaka, Nagoya, Hyogo and Kyoto in Japan; South Carolina in the US; Australia’s Brisbane and Hai Phong, Vietnam.
The targeted completion of the proposed acquisition will be in November.
Geraldine Wong of DBS Group Research points out that over the past year, stronger investor interest in long-stay assets had compressed their yields.
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As such, the fact that ART can fetch 2.8% accretion with this deal is “commendable”, says Wong, who has a “buy” call and $1.40 target price.
“ART has benefited from their first mover advantage into this longer-stay lodging segment with potentially higher and more acquisition hurdles this year as opposed to the past year, alongside higher funding cost,” she says.
She gave her thumbs up to the way the financing for the acquisition was made: partly tapping equity instead of borrowing more.
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Wong expects ART to possibly do a few more rounds of equity fund-raising to ride the recovery cycle.
Chua Su Tye of Maybank Securities, noting the 8% boost to ART’s assets under management and 2.8% lift to distribution per unit, likes this deal too.
“The assets should help strengthen its stable income contribution and push its long-stay assets closer to its medium-term target.
“We see upside to yields from recovering RevPAU,” he says, keeping his $1.40 target price and “buy” call.
“We continue to like ART’s diversified portfolio, concentrated long-stay assets, strong balance sheet, and $300 million in residual divestment gains, which could add to capital distributions amid its DPU recovery,” he adds.
Lock Mun Yee of CGS-CIMB, meanwhile, has kept her “add” call but with a slightly raised target price of $1.25, up from $1.24, to take into account FY2022 – FY2024 distribution per share accretion of 1.1-5.9% from the deal.
ART shares closed Aug 17 at $1.15, up 0.88%.
