“We revise our estimates downwards, as we see higher cost pressures weighing on margins and distribution per unit (DPU) going forward. With a shortage in staff, ARAHT has been turning to contract labour to support occupancy levels, which has contributed to higher expenses and lower margins. We expect this to continue in the medium term, as the unemployment rate remains low and the labour market remains tight,” say DBS analysts.
Despite margin pressure, DBS Group Research forecasts an “attractive” 14% yield in FY2023 from ARA US Hospitality Trust (ARAHT).
In a Nov 8 note, DBS Group Research analysts Tabitha Foo, Derek Tan and Geraldine Wong are maintaining “buy” on ARAHT with a lower target price of 55 US cents (77 cents) from 70 US cents previously. Despite the trimmed forecast, the new target price represents 55% upside against its traded price of 35.5 US cents on Nov 4.
