SINGAPORE (Aug 15): DBS Group Research is maintaining its “buy” recommendation for Ascendas Hospitality Trust (AHT) with a target price of 80 cents despite its recent share price rally.

In a Thursday note, lead analyst Mervin Song notes that AHT’s unit price had rallied over the past few months, recovering from the selloff following AHT’s rejection of a takeover offer earlier in the year.

At current levels, Song believes AHT still offers compelling value as it trades at a discount to DBS’s target price and its net asset value per unit of 85 cents, providing a dividend yield of 7.5%.

The trust’s 1Q17 results were in line with the brokerage’s expectations, as distribution per unit of 1.29 cents achieved 23% of full year forecasts. Net property income rose 5.5% to $22.6 million due to higher contributions from Hotel Sunroute Osaka Namba.

In its Australia operations, NPI fell 2.8% to $11.4 million, due to a weaker Australian Dollar. In AUD terms, NPI rose 0.3% to A$11.3 million ($11.6 million).

During the quarter, the Australian portfolio recorded a 1.7% increase in RevPAR to A$137 with a 2.4% increase in average daily rate (ADR) to A$168.

In China, occupancy rose 3.6 percentage points to 86.5% and RevPAR increased 3% to RMB357 ($72.3), though ADR fell 1.7% to RMB412. NPI in RMB terms rose 4.6% to RMB9.9 million from higher RevPAR. In Sing dollar terms however, NPI fell 1.1% to $2.1 million.

The Singapore portfolio recorded weaker corporate demand and higher commissions incurred from online bookings, and NPI from Park Hotel Clarke Quay fell 2.6%.

Song believes AHT’s Sydney, Melbourne and Japanese hotels would help it to sustain a stable distribution per unit even as it encounters challenges in Beijing, Singapore and Brisbane.

“This is due to the favourable mix of growing tourist arrivals, decent domestic demand and modest supply of new hotels in Sydney, Melbourne, Osaka and Tokyo,” Song writes.

According to , AHT’s gearing of 33% provides it with sufficient headroom to pursue debt-funded acquisitions.

“In addition, we believe the ability to execute on non-organic opportunities is enhanced by the recent appointment of Miguel Ko as chairman of [AHT]. Mr Ko, who is currently the CEO of [AHT]’s sponsor, was formerly the Chairman and President of Starwoods Hotels & Resorts Asia Pacific and Deputy Chairman and CEO of CDL Hotels International”, adds Song.

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