SINGAPORE (Apr 12): UOB KayHian is raising Ascott Residence Trust (ART) to “buy” with $1.46 target price given it has been disciplined when it comes to recycling capital.

Ascott Residence Trust (ART) invests in income-producing assets used as serviced residences, rental housing and other hospitality assets.

In Jan, it sold premier serviced residence Ascott Raffles Place at $353 million which represents an attractive exit yield of 2% and a divestment gain of $134 million.

See: Ascott REIT divests Ascott Raffles Place for $353.3 mil; 64% above book value

Proceeds from the divestment were then re-deployed for the acquisition of Felix Hotel in Australia and its maiden development project lyf one-north in Singapore.

See: Ascott REIT acquires Sydney limited-service business hotel for $59 mil

The re-investment in Felix Hotel was made at an EBITDA yield of 6% while lyf one-north Singapore achieved a yield-on-development cost of 6%.

The acquisition of Felix Hotel will be funded by a combination of bank loans and divestment proceeds. Assuming 100% debt financing, ART’s gearing as at end Dec will increase marginally from 37.4% to 38.2%.

Felix Hotel will be rebranded as Citadines Connect Sydney Airport after its $58.8 million acquisition.

In a Friday report, lead analyst Jonathan Koh says the freehold, limited-service business hotel is well-positioned to benefit from the growing transient traveller traffic, as well as a significant number of transport and logistics-related national corporate accounts.

The acquisition will add 150 rooms, bolstering ART’s Australia portfolio to over 900 units across six properties.

“The clustering effect across these Ascott-managed properties, will enable ART to enjoy scale and operational efficiency,” adds Koh.

As at last Dec, ART’s international portfolio comprises 73 properties with 11,430 units in 37 cities across 14 countries.

As at 11.10am, units in ART are trading at $1.20 giving it an FY21F DPU yield of 6.75%.