DBS Group Research analysts Tabitha Foo, Derek Tan and Geraldine Wong have kept “buy” on ARA US Hospitality Trust XZL (ARA H-Trust) with a lower target price of 40 US cents from 45 US cents previously following the trust’s 2HFY2023 ended December results announcement.
Although ARA H-Trust’s 2HFY2023 DPU of 1.929 US cents missed DBS’s estimates, operational performance and margins improved, the analysts note.
They also highlight that ARA H-Trust actively manages its portfolio through the divestment of underperforming assets and redeployment of capital into acquisitions with strong underlying market fundamentals.
“Its maiden acquisition of three Marriott-branded hotels and a recent Hilton acquisition have exceeded expectations in terms of recovery and set the stage for future acquisition targets. We see this as a testament to the manager’s asset management strategy and the key to building a more diversified and resilient portfolio that is primed for long-term growth,” the analysts add.
DBS believes the market is severely underestimating consumers’ desire to travel and ARA H-Trust’s recovery potential. The analysts also think that the worst is “truly over” despite recessionary fears, and that the trust will continue to deliver robust operating metrics to catalyse a share price rerating. They project ARA H-Trust’s revenue per available room to surpass pre-pandemic levels in FY2024.
The analysts’ estimates for ARA H-Trust’s FY2024/FY2025 DPU stood at 3.48 US cents and 4.59 US cents respectively, indicating a 14.5% cut for FY2024 DPU.
Their gross operating profit margin projection is lifted to 37% for FY2024, as wage pressures are starting to moderate in the US. Their net property income margin projection is also increased to 28.9% for FY2024 on lower property taxes.
“However, this is more than offset by higher interest expenses, as average cost of debt for FY2024 appears to be at around 6% and there will be a shift in management fees to more cash to not dilute the existing unitholder base should they issue new shares at 0.4x P/B.
“Nonetheless, we believe that ARA H-Trust has navigated through the most challenging times and is well positioned now to emerge stronger and see better days ahead,” the analysts add.
As at 11.03am, units in Ara H-Trust are trading flat at 30 US cents.
