Analysts from DBS, CGS-CIMB and Maybank Kim Eng have maintained their “buy” or “add” calls on Ascott Residences Trust (ART) at target prices of $1.10, $1.08 and $1.05 respectively following its results release on July 28.
DBS Group Research analyst Derek Tan said despite its earnings miss in 1H20, ART’s appetite for portfolio rejuvenation remains robust despite on-going headwinds, powered by a debt headroom of above $1 billion.
Despite a “weaker overall performance”, CGS-CIMB analysts Eing Kar Mei and Lock Mun Yee believe 2Q20 was the worst quarter for the trust.
“We expect domestic demand and alternative business to support ART’s income in the near term as countries open borders gradually. Management sees better q-o-q performance in 2H20 and believes it would take a year for a full recovery. Additional 12 properties have been reopened in July and 7 are scheduled to reopen in 3Q20,” they say.
Eing and Lock have increased their DPU for FY20-22F by 4-5% as they “realign” their numbers with ART’s 1H20 results, which are the first since its merger, and on better-than-expected RevPAU performance.
Maybank Kim Eng’s Chua Su Tye expects its master leases and minimum income contracts to support DPUs into 2H.
Chua points out that gross profit from AHT’s ‘stable’ income rose 27.3% y-o-y and 15.1% h-o-h, as the addition of AHT’s eight properties in Japan, South Korea and Singapore and the Quest Macquarie Park Sydney offset weak demand and property closures in Europe.
DBS’s Tan added that ART’s added capital and liquidity reserves of $850 million will serve as a safety net towards lessee rental reliefs and potentially supplement distributions. Target price implies a target FY21F yield of 5.1% and a price-to-book of 0.88x.
ART’s divestment of Ascott Guangzhou and Citadines Didot Montparnasse Paris, along with the capital and liquidity reserves will serve as a shield to tide through two years’ worth of cash burn under the worst-case scenario where the REIT receives zero income and provides some form of comfort to investors.
Tan thinks the divestments will bring forth an additional $190 million upon completion in 1Q21, which he thinks will be recycled to pare down debt, fund further acquisitions or pay off fixed expenses.
As at 1.11pm, units in ART were trading at 89 cents, down 0.5% from its last close of 90 cents with a forecasted yield of 3.4%, 4.6% and 6% from Maybank, CGS-CIMB and DBS respectively.
