SINGAPORE (Feb 5): DBS is maintaining its "buy" on Ascendas Hospitality Trust (A-HTrust) given its medium-term leverage to the Australian and Japanese hospitality markets and 13% discount to its pro-forma book value of $1.02.
"With more than 10% total return projected over the coming 12 months, we maintain our 'buy' call with a revised target price of $0.97," says analyst Mervin Song.
A-HTrust has been ignored by many investors due to its small market cap and its large exposure outside Singapore, says Song, which means this is an opportunity, as its key markets of Australia (52% of 9M18 NPI) and Japan (25%) are in a secular uptrend over the medium term, thanks to their low penetration of international visitors.
For example, a small country like Singapore attracts 16 million visitors annually versus Japan and Australia with around 24 million and 8 million, respectively.
Meanwhile, Song believes the sale of its Beijing hotels at more than twice the book value demonstrates the valuation upside potential of its portfolio. This should allow A-HTrust's yield differential to tighten further from here.
And with its gearing expected to drop to about 28% post the sale of its Beijing hotels, A-HTrust is in a strong position to pursue DPU accretive acquisitions.
"We also believe the trust’s ability to execute on non-organic opportunities is enhanced by having Miguel Ko as Chairman," says Song.
Ko, who is the CEO of AH-Trust's sponsor, was formerly the chairman and president of Starwood Hotels & Resorts (Asia Pacific Division) and deputy chairman and CEO of CDL Hotels International.
"We forecast a higher target price of 97 cents given the expected increase in NAV per unit as it completes the sale of its Beijing hotels for more than double its book value and on a 3.3% exit NPI yield," adds the analyst.
As at 1.21pm, units in A-HTrust are trading 1 cent lower at 87 cents.
