DBS Group Research has lowered its target price for Acrophyte Hospitality Trust (ACPH) formerly known as ARA US Hospitality Trust XZL to 25 US cents (33.44 cents) from 40 US cents previously, after revising down their near-term recovery outlook for the REIT.
Analysts Tabitha Foo, Derek Tan and Geraldine Wong maintain their “buy” call, and note that the REIT is the “best poised” among the Singapore REITs to ride on US travel demand supported by strong consumer spending.
The analysts say that the REIT’s operational metrics continue to look healthy, albeit a modest decline from a high base in 3QFY2023.
The REIT’s 3QFY2024 results ended Sept 30 saw its revenue per available room (RevPar) coming in at US$104, less than a 1% decline y-o-y as the fall in occupancy to 72.8% was offset by the increase in average daily rate (ADR) to US$143.
They note that the decline in occupancy could be attributed to US travellers’ preferences shifting towards international travel, supported by the strength of the US dollar.
Meanwhile, the REIT’s gross operating profit margins have been underperforming expectations, stemming from rising costs, the analysts say. This is due to the ongoing wage pressures due to a tight labour market in the US.
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DBS notes that the REIT’s manager is actively collaborating with the property manager to improve labour management and productivity by reviewing deployment and scheduling.
“We expect labour cost pressures to gradually ease, also supported by asset enhancement initiatives (AEI) that improve cleaning and maintenance efficiency. Additionally, with insurance costs rising, ACPH is focused on balancing higher premiums with adequate coverage limits to manage risks responsibly,” they note.
The analysts therefore revise down their near-term recovery outlook for ACPH due to lower-than-expected margins on cost pressures and higher-than-anticipated interest expenses.
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Their distribution per unit (DPU) estimates now translate to forward yields of about 8%, suggesting that near-term risks have been adequately baked into share price.
DBS’s FY2024/FY2025 DPU forecasts are at 1.55/1.65 US cents respectively.
As ACPH has divested nine hotels as at Oct 2024, and embarked on AEIs to enhance the value and profitability of higher performing assets, DBS analysts see value in the REIT, and keep their “buy”.
As at 11.35am, units in Acrophyte Hospitality Trust are trading 0.5 US cents lower or 2.439% down at 20 US cents.
