Analysts from CGS-CIMB Research, Maybank Kim Eng and OCBC Investment Research (OIR) have kept “add” or “buy” Ascott Residence Trust (ART) after the REIT reported 95% higher distribution per stapled security (DPS) of 2.045 cents for the 1HFY2021 ended June.
CGS-CIMB’s Eing Kar Mei and Lock Mun Yee have increased their target price estimate on ART to $1.22 from $1.20 previously, while Maybank Kim Eng’s Chua Su Tye has upped his target price estimate to $1.30 from $1.25 previously.
OCBC Investment Research analyst Chu Peng, meanwhile, is the exception as her fair value estimate is reduced to $1.21 from $1.22 previously.
See also: Ascott sees over 40% y-o-y growth in first 7 months of 2021
The slightly lower estimate was made to factor in the latest developments from the REIT as well as a slight environmental, social and governance (ESG) discount despite ART’s results coming in line with her expectations.
To be sure, ART’s DPS for the 1HFY2021 stood at 50% of Chu’s expectations for the FY2021.
That said, Chu is positive on the REIT as she sees its recovery momentum continuing in the 2HFY2021 with accelerated vaccination and easing restrictions, though downside risks could come from a potential spike in the delta variant.
On the ESG front, Chu says, “there are concerns over ART’s corporate governance which falls into the lower scoring range as compared to its peers due to ART’s executive pay and ownership structure”.
“ART also shows lagging efforts to attract and retain talent and fewer green-certified buildings in its portfolio. However, ART appears to have stepped up its environmental efforts which brought the total number of green properties to 21 in 2020 which is about four times more green-certified properties as compared to 2019,” she adds.
To CGS-CIMB’s Eing and Lock, ART has shown gradual improvement and that its recovery moving forward will be more sustainable due to the rising rate of vaccinations globally.
“With its longer weighted average lease expiry (WALE) and diversified geographies, ART has demonstrated its resilience during these trying times,” they write in a July 27 report.
On this, they have adjusted their DPS estimates for the FY2021 to FY2023 by -2.4% to +2.6% after factoring in higher income top-up, lower operating expenses and a slower-than-expected recovery.
ART’s lower gearing of 35.9% as at end-June provides a substantial debt headroom of around $1.9 billion with the flexibility to acquire more properties. As such, Eing and Lock expect the REIT to “aggressively” seek out acquisition targets to offset the income vacuum created by its divestments.
ART currently has slightly over $300 million in capital gains remaining, which could underpin distribution stability, note Eing and Lock, some of which the REIT will distribute to shareholders in the 2HFY2021.
Maybank Kim Eng’s Chua says he continues to “like” ART for its diversified portfolio, concentrated long-stay assets, strong balance sheet as well as $300 million in residual gains.
For more stories about where the money flows, click here for our Capital section
During the 1HFY2021, ART saw improved fundamentals as well as an increase in its stable income.
“Domestic and essential corporate travel will lead demand growth, and we see a gradual RevPAU recovery in 2HFY2021, given the accelerated pace of vaccine roll-out and easing of lockdowns and border controls, which is expected to strengthen from FY2022,” he writes in a July 27 report.
In addition to his higher target price estimate, Chua has raised his DPS estimate for the FY2022 to FY2023 by 5% from its recent deals.
As at 3.41pm, units in ART are trading flat at $1.03, or 0.92 times P/BV, according to CGS-CIMB’s estimates.
Photo: ART
