Broker's Take: Ascendas Hospitality Trust gets 'hold' call on upside from rebranding

DBS EQUITY Research has maintained its "hold" call on Ascendas Hospitality Trust at a target price of S$0.72, citing upside from its rebranding and asset enhancement initiatives (AEI).

At its current level, the trust offers yields of 8 per cent to 9 per cent.

The trust's management said it is exploring the possibility of rebranding its Osaka property once the master lease agreement expires at end-2015 and may conduct refurbishment works.

The trust is also studying AEI opportunities in Australia, said the research house.

As the trust has completed the unwinding of the cross currency swap (related to prior swapping of AUD debt to SGD) earlier than expected in October this year, the company should recognise another S$3 million in costs in Q3 2015.

But DBS said the drag from the unwinding which caused Q2 2015 distribution per unit to drop 10 per cent year-on-year should end from Q4 2015 onwards.

Excluding this impact, Q2 2015 distribution per unit would have risen by 3.5 per cent year-on-year

To manage foreign exchange exposure, the trust highlighted that it also hedges at least 50 per cent of its expected distributable income 15 months forward.

In terms of rebalancing its portfolio, about 48 per cent of it by asset value is derived from Australia, down from 67 per cent at its listing two years ago.

To further diversify its portfolio, the trust is exploring opportunities to expand into China and Japan.

Japan should continue to benefit from healthy tourist arrivals ahead of the 2020 Tokyo Olympics, while China provides exposure to rising affluence over the medium or long term, DBS said.