Brokers' take: UOBKH upgrades Ascott Residence Trust to 'buy' with higher S$1.16 target price

UOB Kay Hian (UOBKH) has upgraded Ascott Residence Trust (ART) to "buy" from "hold" with a higher target price of S$1.16 compared to S$1.09 previously, as it expects the stapled group to benefit from its medium-term portfolio strategy along with a recovery in Europe.

The brokerage is forecasting ART's distribution yield to improve to 5.2 per cent in 2022, from 4.2 per cent in 2021.

In a report on Thursday, analyst Jonathan Koh said he is anticipating its Europe portfolio, which accounts for 20.4 per cent of the group's total assets, to benefit from pent-up demand for intra-regional travel following the recent launch of digital vaccination certifications.

Highlighting a surge in low-cost-carrier bookings and improving accommodation booking rates, the analyst believes Europe and Singapore's hospitality industries will be able to achieve a full-fledged recovery by 2023 due to their high vaccination rates.

He is also positive on ART's recently expanded scope of investment mandate to include student accommodation, which he deems an attractive asset class for their counter-cyclical nature.

The stapled group's latest acquisition of three student accommodation properties is estimated to eventually contribute to 12 per cent of group gross profit. Mr Koh views the increased scale in such long-stay assets as beneficial to ART's diversification and resiliency.

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"Student accommodation provides resilient and stable income streams. Leases for student accommodation typically last for a year. Majority of the student population is domestic. Thus, contributions from student accommodation are unaffected by the closure of international borders (caused) by the Covid-19 pandemic," observes the analyst.

Based on the price of S$0.98 per stapled security of ART, he noted that the group trades at a price-to-net-asset value of 0.82 times, which is a discount compared to its peer CDL Hospitality Trusts at 0.89 times.

Stapled securities of the group were trading 0.5 Singapore cent or 0.5 per cent lower at 97.5 cents as at 1.55pm on Thursday.