Broker's take: CGS-CIMB downgrades Ascott Residence Trust to 'hold', sees lack of catalysts

CGS-CIMB has downgraded its "add" call on Ascott Residence Trust (ART) to "hold" while raising its target price on the stapled hospitality group to S$1.08 from S$1.05 previously.

The research house's downgrade comes after ART on Wednesday reported a H2 distribution per stapled security (DPS) of 1.99 cents, while also announcing that it had acquired its first purpose-built student accommodation asset for US$95 million.

In a report on Wednesday, CGS-CIMB analysts noted that ART's valuation has recovered to its five-year mean of 0.9 times price-to-book value (P/BV) at the price of S$1.05 per stapled security. Further recovery remains volatile and hinges on the effective distribution of Covid-19 vaccines, said the analysts, who believe the trust lacks catalysts going forward.

The brokerage nonetheless has raised its estimations for ART's FY 2020-2022 DPS by 4-10 per cent after factoring in its acquisition of the US student accommodation asset, recent divestments, and an expected S$10 million capital distribution for FY2021.

"Despite the pandemic, ART's balance sheet remains robust with gearing at 36 per cent and S$1.05 billion of liquidity reserves, which could cover about three years of fixed cost under a zero-income scenario," said the analysts.

"Upside/downside risks include more accretive acquisitions and capital distribution/weaker-than-expected revenue per available unit (RevPAU)," they added.

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Meanwhile, both DBS and Maybank Kim Eng have retained their "buy" calls on the trust with the respective target prices of S$1.20 and S$1.25.

DBS said in its report on Thursday that it sees "compelling value" in ART, and believes the stapled group is poised to benefit from a rebound in domestic travel and long-stay segment markets ahead of its peers. According to its analysts, recovery in travel demand could be front-end loaded post the distribution of a Covid-19 vaccine this year.

"We see compelling value in ART at 0.8 times price to net asset value, more than -1.5 standard deviation of its historical 10-year mean, with an attractive 6.9 per cent FY2022 dividend yield with upside if travel rebound occurs faster than expected," said the DBS analysts.

Maybank KE analyst Chua Su Tye also believes ART's valuations are currently undemanding at 0.8 times at a forward FY2021 price-to-book. However, he thinks the trust will face slow RevPAU recovery in the financial year ahead given the uneven progress of vaccine rollouts.

"We continue to like ART for its diversified portfolio, concentrated long-stay assets, strong balance sheet, and S$200 million in residual divestment gains which may lift capital distributions amid slower DPS growth," said Mr Chua in a report on Wednesday.

As at the midday break on Thursday, stapled securities of ART were flat at S$1.05.