UOB Kay Hian has upgraded Ascott Residence Trust (ART) to “buy” with a target price of $1.16, representing an 18.4% upside to the counter’s last-closed price of 98 cents.
Analyst Jonathan Koh says ART’s Europe portfolio, which accounts for 20.4% of its total assets, benefits from the recovery in intra-regional travel due to the launch of digital vaccination certificates as well as the reopening of international borders.
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Member states of the European Union (EU) have eased Covid-19 restrictions since May 21, while the UK has dropped all pandemic-related restrictions on July 1.
“Economic activities have been unaffected by the outbreak of the Delta variant because the high vaccination rates have prevented a rise in serious cases and deaths,” says Koh.
He notes that ART has presence in Belgium and Spain, which have the highest vaccination rates in the EU at 71% and 75.5% respectively as at Sept 21.
The company also has presence in France and Germany, which have vaccination rates of 63.1% and 61.6% respectively. In the UK, 64.4% of the population is fully vaccinated against Covid-19.
The EU has launched digital vaccination certificates to allow travel without the need for quarantine within the bloc on July 1. Meanwhile, the UK has allowed fully vaccinated travellers from EU member states to enter England, Scotland and Wales without the need for quarantine since Aug 21.
“Digital vaccination certificates have unleashed pent-up demand for intra-regional travel. Low-cost carriers have reported a surge in late summer bookings. Similarly, bookings for accommodation have recovered to 70% of pre-Covid-19 levels on Aug 21,” says Koh.
Due to their high vaccination rates, Koh expects Europe’s and Singapore’s hospitality industries to experience a full-fledged recovery in 2023, a year ahead of the Americas and other countries in the Asia Pacific region.
One of ART’s share price catalysts is the yield-accretive acquisitions for student accommodation and rental housing properties. ART has a medium-term plan to increase asset allocation to student accommodation and rental housing to 15% to 20% of its portfolio value.
ART has acquired three student accommodation properties in the US (Georgia Institute of Technology, University of South Carolina and Texas Tech University) and three rental housing properties in Japan.
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UOB Kay Hian estimates that the three newly-acquired student accommodation properties would eventually contribute 12% of group gross profit.
“Student accommodation provides resilient and stable income streams. Leases for student accommodation typically last for a year. [The] majority of the student population is domestic. Thus, contributions from student accommodation are unaffected by [the] closure of international borders by the Covid-19 pandemic,” says Koh.
As at 1pm, shares in ART are trading flat at 98 cents, with an FY2021F price to book value of 0.8 times, according to UOB Kay Hian’s estimates.