Analysts lift TPs on Ascott Residence Trust upon greater relaxation of Covid-19 measures

CGS-CIMB Research, DBS Group Research, OCBC Investment Trust and UOB Kay Hian have all kept their “add” and “buy” calls. PhillipCapital has kept its “accumulate” call, one step below “buy”.

All five houses have upped their target price estimates as well.

CGS-CIMB Research’s Lock Mun Yee has pegged a higher target price estimate of $1.24 on ART from $1.21 previously as she sees ART’s recovery “gaining traction”.

Following the update, Lock has also upped her distribution per unit (DPU) estimate for the FY2022 to FY2024 by 0.4% to 0.9%.

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“With border restrictions easing, we believe global travel is likely to recover in the coming months. This should continue to provide more tailwinds to demand for ART’s properties,” she writes in her April 29 report.

Though 28% of ART’s 1QFY2022 gross profit was exposed to the more stable rental housing and student accommodation properties, Lock believes that its serviced residences and hotels properties should enable ART to benefit from the recovery of the global hospitality industry.

DBS Group Research analysts Geraldine Wong and Derek Tan have also lifted their target price on ART to $1.40 from $1.30.

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“ART currently trades at book at 1.0x P/NAV and on attractive 4.9% forward FY2022 yields,” the analysts write in a May 5 report.

“Our discounted cash flow (DCF)-backed target price is raised to $1.40 as we roll forward to FY2023 earnings, and $850 million of acquisitions in the past year in the longer-stay lodging asset class has been fully priced into estimates,” they add. “Future acquisitions to pose an upside to the target price and are not incorporated into the current estimates.”

Furthermore, the analysts estimate a 12% CAGR in ART’s DPU between FY2022-FY2024 as they see “compelling growth” that’s supported by “more resilient income” from ART’s longer-stay lodging assets.

The analysts believe that ART’s first-mover advantage in the longer-stay lodging segment has been paying off, with cap rates compressing 50-100 basis points (bps) in the asset classes over the past year.

“We believe ART will continue with its current strategy in asset recycling to drive earnings and an NAV upside,” they write.

“A healthy gearing level of 38% and $1.8 billion debt headroom could mean that the long-awaited acquisition of the sponsor's $1.0 billion US multi-family portfolio may be considered in 2022,” they add.

OCBC’s Chu Peng has increased her target price to $1.30 from $1.22, while UOB Kay Hian’s Jonathan Koh has upped his target price to $1.32 from $1.29.

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“We believe ART is poised to benefit from the recovery in the hospitality sector as travel restarts while its longer-stay accommodation in rental housing and student accommodation could provide downside protection and income stability,” says OCBC’s Chu.

UOB Kay Hian’s Koh is also positive on ART’s prospects on the back of the easing of border. He has, however, decided to trim his FY2022 DPU forecasts by 6% due to observed weakness in January to February.

That said, he has raised his DPU forecasts for the FY2023 by 2% “due to rapid recovery and reopening since March”.

Koh also expects ART’s distribution yield to improve from 4.4% for FY2022 to 5.4% for FY2023.

Finally, PhillipCapital’s research team has increased its target price on ART to $1.24 from $1.23.

The team has also upped its DPU estimates for the FY2022 to FY2026 by 0.3% to 0.9% as they factor the REIT’s acquisition of its rental housing and student accommodation assets in Japan.

“Catalysts include faster than anticipated recovery, opportunistic divestments and acquisitions of extended stay assets,” the team writes.

Units in ART closed at $1.17 at a FY2022 P/B ratio of 0.99x and dividend yield of 4.31% according to CGS-CIMB’s estimates.

Photo: ART