ANALYSTS from Maybank Kim Eng and CGS-CIMB reiterated "buy" calls on Ascott Residence Trust (ART) HMN : HMN 0%on Tuesday, both projecting recovery despite it reporting lower revenue and gross profit in its H1 2021 earnings results.

Thanks to one-off gains in distributable income, ART on Tuesday reported a 95 per cent increase in its distribution per stapled security (DPS) to 2.05 Singapore cents for the first-half ended June 30, from 1.05 cents for the year-ago period.

Following that, the research team from Maybank Kim Eng upped its target price for ART to S$1.30 from S$1.25, a 27.4 per cent upside on its trading price of S$1.02 at 3.45pm on Wednesday. The analysts said they expect to see further improvement in revenue per active unit (RevPAU) and increased traction for the stapled security group in the second half of this year, as border reopening gathers pace.

"We continue to like ART for its diversified portfolio, concentrated long-stay assets, strong balance sheet, and S$300-plus million in residual divestment gains to support capital distributions amid slower distribution per unit growth," Maybank Kim Eng said.

Further, the analysts note that ART is poised for further growth through acquisitions, observing for instance that its merger with Ascendas Hospitality Trust boosted its assets under management and strengthened its growth profile with stable-income properties. ART, they add, is already seeing rising contributions from its stable income assets that include student accommodation and rental housing properties. (see amendment note)

Upside swing factors include earlier-than-expected pickup in corporate demand, better-than-anticipated RevPAUs and accretive acquisitions where cap rates exceed the cost of funds, or divestments at low cap rates that unlock asset values, the team said, although it also warns of growth in supply of serviced residences unmatched by demand.

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Meanwhile, CGS-CIMB projects "more sustainable" recovery for ART, conservatively upping its target for the stapled security group to S$1.22 from S$1.20 - still an upside of 19.6 per cent on its trading price of S$1.02 at 3.45pm on Wednesday.

Its analysts observed that ART's portfolio RevPAU has been improving on a quarter-on-quarter basis since the second quarter of 2020, and is projecting further recovery in occupancy on the back of relaxations in restrictions around the world and region.

"China continued to lead the recovery with higher corporate demand; Europe benefited from summer leisure demand; while block bookings in Australia, Singapore and USA, and long stays in Indonesia, Philippines and Vietnam offered income stability in these countries," the research team said.

They also noted that ART's gearing in the first half of financial year 2021 was lowered to 35.9 per cent, providing substantial debt headroom and flexibility to acquire, while also staying active in capital recycling.

"We expect ART to aggressively seek out acquisition targets to offset the income vacuum created by its divestments. It has more than S$300 million capital gain remaining which could underpin distribution stability," they added.

On the environmental, social and governance (ESG) front, CGS-CIMB says ART aims to obtain green certificates for all its properties by 2030, but notes that this may be challenging given that it has several "relatively old" buildings among its 88 properties worldwide. If it does succeed in this endeavour, though, CGS-CIMB says it will be at the forefront of ESG. (see amendment note)

On the whole, CGS-CIMB's research team said ART's longer weighted average lease expiry and diversified geographies indicate its resilience despite the impact of the pandemic.

Units of the stapled security group last transacted at S$1.02 at 3.45pm in Wednesday trade, 1 per cent or 1 cent down from their opening price.

READ MORE: Ascott Residence Trust almost doubles H1 DPS to 2.05 S cents despite 11% revenue drop

Amendment note: A previous version of this article wrongly stated that ART had merged with Ashford Hospitality Trust. Additionally, the CGS-CIMB research report had said ART has 86 properties worldwide. The figure is actually 88.