CGS-CIMB Research’s Eing Kar Mei and Lock Mun Yee have downgraded its rating on Ascott Residence Trust to “hold” from “buy albeit with a slightly higher target price of $1.08, up from $1.05.
This is because they see a “lack of catalysts” and said that while there are signs of a recovery, the trust “remains volatile and hinges on the effectiveness of vaccines.”
They note that ART’s properties in China saw the least impact from Covid-19, with a 25% yoy Revenue per Available Room (RevPAU) decline in 2HFY2020, supported by long stays and recovery in domestic demand.
On the other hand, Japan, the UK and the US saw the largest drops at -85%, -86% and -79% y-o-y in revenue per available unit (RevPAU) in 2HFY2020, but said that rent collection from lessees remained healthy at 80%.
Despite the overall drop in RevPAU in 2HFY2020 at 69% y-o-y, the analysts said ART’s FY2020 DPU of 3.03 cents came in “above expectations” as the REIT topped up $45 million, or about 1.45 cents per unit. This included the releasing of $5 million of income retained from 1HFY2020, but the figure was 60% lesser y-o-y.
FY2020 revenue and gross profit declined by 28% and 41% y-o-y respectively, due to divestment of assets in Singapore and Vietnam, while RevPAU declined 61% y-o-y to $59 million, partially offset by an additional contribution of $101.8 million from the acquisition of A-HTrust portfolio and properties in Australia.
Average daily room rate (ADR) was stable q-o-q, while occupancy improved to mid-40% in 4QFY2020, compared to 1HFY2020 occupancy of about 50%, leading to better RevPAU q-o-q.
Eing and Lock said portfolio valuation declined 7% y-o-y, mainly due to weaker performance of the properties, but they understand independent valuers are pricing in a recovery in two to four years.
They note that ART’s balance sheet remains robust with gearing at 36% ($1.9 billion debt headroom) and $1.05 billion of liquidity reserves, which could cover about three years of fixed cost under a zero-income scenario.
DBS Group Research analysts Geraldine Wong and Derek Tan have, on the other hand, maintained both their buy call and the same target price of $1.20, saying they see “compelling value” at 0.8 times price to net asset valuation (P/NAV).
This is more than -1.5 standard deviation of its historical 10-year mean, adding this is “along with an attractive 6.9% FY2022 dividend yield with upside if travel rebound occurs faster than expected.”
Wong and Tan think a focus on big domestic travel markets and long-stay segment should pay off, and phased reopening a positive sign that portfolio has attained at least a breakeven level of operations.
“With a diversified portfolio deriving around 70% exposure from these “domestic markets”, we believe ART can rebound ahead of peers,” they conclude.
At 4.11pm, shares of ART were trading at $1.04, with a FY2021 price to book ratio of 0.9 times and dividend yield of 3.7%
