The Business Times

Brokers' take: DBS raises ARA H-Trust's target price to US$0.79 on travel recovery

Tan Nai Lun
Published Fri, Jul 9, 2021 · 11:08 AM

ARA US Hospitality Trust XZL : XZL 0% (ARA H-Trust) will likely benefit from a travel recovery boosted by the holiday season, DBS Group Research said in a research note on Thursday.

The research house raised its target price for ARA H-Trust to 79 US cents from 69 cents, as the trust's US hotel portfolio is the most favourably poised among Singapore real estate investment trusts to capture the recovery of the travel sector in the US during the summer break, it said.

Stapled securities of ARA H-Trust closed up 0.36 per cent at 57.5 US cents on Friday.

ARA H-Trust's portfolio of select hotels are located in well-vaccinated states, hence it is well-positioned to capture the reopening on all fronts, including leisure demand, airport demand and corporate demand, DBS said.

Furthermore, since the trust is domestic-focused, the opening of borders will not be a major driver of its earnings, but rather a late booster.

As the holiday season kicks in, occupancy rates of hotels in the US are returning to a pre-pandemic high of 70 per cent, and daily rates are back to normalised levels, DBS noted. It added that since the pricing power is back in the hands of hoteliers, around 95 per cent of hotels are currently at least at break-even and three quarters are turning in profits.

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DBS also maintained a "buy" call on the stock, as it expects the trust will post a turnaround in profits in the upcoming quarters.

It said that the management's plan for a mid-year review in valuations, after a 13.5 per cent portfolio devaluation in FY2020, can improve ARA H-Trust's financial fluidity and also quell fears of the trust's gearing breaking the Monetary Authority of Singapore's leverage limit of 50 per cent and the need for equity fundraising. Gearing for the trust is currently at 48 per cent.

DBS expects a multi-year revenue per available room growth trend will drive ARA H-Trust's distribution per unit and a four-year normalisation period, while delivering FY2021 and FY2022 yields of 4.3 per cent and 9.9 per cent, respectively.

ARA H-Trust is a pure-play US upscale select-service hospitality trust and a Singapore-listed stapled security comprising ARA US Hospitality Property Trust and ARA US Hospitality Management Trust.


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