SINGAPORE (Apr 16): OCBC Investment Research is downgrading Ascott REIT (ART) to “hold” from “buy” given current valuations are not as compelling as before.

Recall that on Jan 10, OCBC upgraded ART from “hold” to “buy” before making it its top pick in hospitality REIT sector on Mar 5.

Since the house’s upgrade report to Apr 12, ART has posted total returns of 12.8% versus the Straits Times Index’s 5.9% rise and the FTSE Straits Times REIT Index’s 9.1% rise.

With that rally, upside to ART’s fair value by OCBC has narrowed. At the Apr 12 close, ART is trading at a 5.9% FY19F dividend yield, based on OCBC forecasts. Using Bloomberg consensus figures, ART’s blended forward 12-month yield is at 5.96%, or 1.5 SD below its 5-year average.

Meanwhile, RevPAR figures for Jan and Feb from the Singapore Tourism Board suggest a weak start to the year for upscale and mid-tier hotels likely due to the absence of events like the biennial Airshow that was held in 2018, OCBC notes that ART’s exposure to assets locally remains relatively small as Singapore made up 20.3% of ART’s portfolio in terms of valuation.

In the Monday report, OCBC lead analyst Deborah Ong says she continues to like ART for its geographically diversified portfolio of high quality assets.

In addition, the REIT continues to expand its global footprint with the acquisition of prime freehold hotel in Sydney for $58.8 million. After the divestment of Ascott Raffles Place, ART will also have a debt headroom of close to $1 billion, offering it greater flexibility to pursue DPU accretive acquisitions.

As at 11.22am, units in REIT are up 1 cent at $1.21.