Brokers' take: CGS-CIMB upgrades Ascott Residence Trust to 'add', expects faster recovery

CGS-CIMB has upgraded Ascott Residence Trust (ART) to "add" from "hold" with a higher target price of S$1.20 compared to S$1.08 previously, on the assumption that the trust will see a faster recovery from Covid-19 compared to its peers.

While the brokerage reduced its FY2021-2022 distribution per unit (DPU) estimates to factor in a slower recovery in FY2021, it has raised its FY2023 DPU estimates on expectations of an acceleration from end-FY2022.

It has also raised its terminal growth assumption for ART over FY2021-2022.

In a Thursday report, CGS-CIMB said it believes ART will experience faster-than-peer revenue per available unit (RevPAU) recovery as 41 per cent its assets under management (AUM) are located in countries with low rates of Covid-19 infections, which would support a pickup in domestic travel.

In particular, the brokerage is expecting ART's assets in Europe - which forms about 20 per cent of the trust's AUM - to recover faster due to its strong domestic market and fast inoculation rate.

Noting that the trust reported quarter-on-quarter improvement in RevPAU over Q4, CGS-CIMB highlights that ART's performance in countries with long-stay guests, such as China and Vietnam, was better than in those that traditionally depend on transient travellers.

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The brokerage also continues to like ART for its strong balance sheet, which it believes will support the trust's inorganic growth while also enhancing its income stability.

It projects the trust's recently-acquired US purpose-built student accommodation, Signature West Midtown, to realise a 4.4 per cent DPU accretion based on FY2020 pro forma estimates.

"Positive development of Covid-19 vaccines points to a faster recovery (for ART)," said CGS-CIMB.

As at 2.13pm, the stapled securities of ART were up 1.9 per cent or S$0.02 to S$1.08.