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SINGAPORE (June 1): DBS Vickers says it is “generally positive” on Ascott Residence Trust’s most recent acquisition given the expected DPU accretion although much will depend on how it is funded.
ART’s manager on Wednesday announced the acquisition of its third property in Manhattan, the DoubleTree by Hilton Hotel New York in Times Square South for a consideration of US$106 million ($148.4 million).
The 224-room freehold property will be acquired on a FY16 pro-forma EBITDA yield of 6% and US$473,000 per key. Average occupancy for the hotel was 95.2% from 2013-2016 with 95% of topline coming from room revenue.
ART is estimating a 0.8% DPU accretion to FY16 proforma DPU, assuming the group funds the acquisition by borrowing $92.4 million from the bank and $65.8 million from the potential issuance of perpetual securities. After the acquisition, gearing should increase to 38% from 36%.
The acqusition will also increase the value exposure of ART’s US portfolio to 12.3% from 9.7%.
In a Thursday report, DBS Vickers analyst Mervin Song says, “We are generally positive on the acquisition given the expected DPU accretion as well as ART's increasing scale and exposure to the growing demand in New York on the back of various commercial developments and New York being a major tourist location.”
However, Song says there is some uncertainty over future revenue per available room (RevPAR) performance. Growth in supply over the past few years had partially contributed to RevPAR for the Times Square area falling from US$251 in 2014 to US$236 in 2016.
But ART expects revenue per available room (RevPAR) to remain stable, if not rising, over the medium term given that the REIT should be able absorb the 4-5% supply growth per annum between 2017 and 2019.
DBS has a “buy” recommendation and target price of $1.16 for the REIT as it awaits ART’s final decision on how it intends to fund the acquisition.
Units of ART are up 1 cent at $1.14.