DBS Group Research analysts Geraldine Wong and Derek Tan are remaining positive on Ascott Residence Trust (ART) with a “buy” call as they see large domestic travel markets sustaining the trust.
Amid the news of the new Covid-19 variant, the analysts believe “large domestic travel markets continue to be well-sheltered from the faltering developments on border reopening”.
In addition, the analysts have upped their target price estimate on the counter to $1.30 from $1.20 previously. The higher target price comes as Wong and Tan estimate a softer earnings recovery trajectory to around 70% of normalised levels in FY2022, as well as a $300 million acquisition assumption for the year.
In their report on Dec 6, the analysts see ART trading at a compelling value, with the counter currently trading below book at 0.9 times price-to-net asset value (P/NAV) and on attractive 5.6% forward FY2022 yields.
On this, they peg a 43% y-o-y distribution per unit (DPU) growth and “on more resilient income stream from longer-stay lodging assets”.
In the same report, Wong and Tan say they see a softer trajectory to normalisation for the resumption of travel as well as the recovery for hotel sectors from an islandwide revenue per average room (RevPAR) at 50% of 2019 levels for FY2021.
See also: CGS-CIMB maintains 'add' call on Sembcorp Marine following news of probe in Brazil
“With border reopening delayed from the Omicron variant development, ART’s 73% exposure to large domestic travel markets will continue to serve as an earnings buffer as domestic lodging demand will still be the most stable income stream for now,” write the analysts.
“Moreover, maiden acquisitions within the student accommodation space and longer-lodging asset segment have fuelled inorganic growth of ART’s stable income contributions this year, en-route to ART’s long-term target of a 15-20% portfolio exposure in this space,” they add.
Wong and Tan are also positive on ART’s asset recycling to drive upside in earnings and its net asset value (NAV).
See also: RHB downgrades Starhill Global REIT to 'neutral' on arbitration overhang
“[A] healthy 35% gearing level and $2 billion debt headroom could mean that long-awaited acquisition of sponsor's $1 billion US multifamily portfolio may be considered in 2022,” they write.
That said, one of the key risks to ART’s share price, is the ongoing Omicron variant, which may cause a longer-than-expected delay to the reopening of global borders.
As at 11.12am, shares in ART are trading 1 cent higher or 1% up at $1.01.