• No financial data provided in this operational update. To recap, 1H21 DPU (+95% YoY) of 2.05 cents was in line at 47% of our estimate.
• Gradual recovery evident from rising RevPAU, driven by higher ADRs in 3Q21.
• S$491mn invested in extended stay assets year-to-November will replaced ART’s divested income, hastening DPU recovery. High vaccination rates in key markets and governments’ commitment to reopening of international borders should support further recovery.
• Maintain ACCUMULATE and DDM-based (COE 8.5%) TP of S$1.19. FY21 recovery has been more laboured that we initially anticipated. As such, we tweak our FY21e-25e DPU estimates between -5.8%-0.3%, with no impact to our DDM-derived TP of S$1.19. We have incorporated a more gradual pace of recovery as well as incorporating the two PBSA acquisitions, Wildwood Lubbock and Seven07.

The Positives

• Fifth quarter of RevPAU recovery (Figure 1 and 2). 3Q21 RevPAU grew 8% QoQ and 49% YoY, driven by higher ADRs. Portfolio occupancy was unchanged QoQ at c.55%. Stronger QoQ RevPAU recovery in 3Q21 from Japan (+108%), France (3Q21 occupancy: 80%), UK (+45%) and US (+50%). Two SRs in Tokyo secured group booking during the Tokyo Olympics. France and UK benefitted from domestic and European leisure demand during the summer holidays. US saw strong domestic leisure demand, particularly on weekends, as well as an uptick of corporate group booking and transient travellers as the US economy reopened. China also registered a slight 3% QoQ growth in RevPAU on a same-store basis due to returning corporate long stay demand.
• Acquisitions to rebalance portfolio and replace divested income. ART has invested S$491mn year-to-November at average EBITDA yield of 5%, replacing S$13mn in lost distributable income due to divestments. YTD, ART has picked up three rental housing assets and four purpose build student accommodation (PBSA) assets in the US, one of which is still under development. Apart from replacing divested income, these long stay assets provide income visibility, providing a stable base of earning for ART.

The Negative

• Vietnam and Australia’s performance marred by lockdowns in 3Q21. Australia’s RevPAU fell 28% QoQ due to lockdowns and interstate travel restrictions – New South Wales and Victoria were in lockdown for the most part of 3Q21. Thankfully, three out of 14 of ART’s Australian properties were block booked by the government for isolation business. Similarly in Vietnam, lockdown measures in Ho Chin Minh City and Hanoi resulted in a 19% QoQ decline in RevPAU. Both Australia and Vietnam have begun easing restrictions since late September.

Outlook

High vaccination rates in ART’s eight key markets – France, UK, US, Australia, China, Japan, Singapore and Vietnam. As at end-Oct21, with exception of Vietnam, these countries have fully vaccinated between 68%-84% of its population. While fully vaccinated population in Vietnam is relatively low at 23%, vaccination rates in cities where ART has presence in such as Ho Chin Minh City and Hanoi have reached 60% and 80% respectively. UK, France and US have recovered ahead of the rest of ART’s territories, owing to domestic leisure demand. These countries are also one of the first to reopen leisure travel lanes with selected countries. Following the lifting of lockdown in Brisbane in Sep21, and Melbourne and Sydney and October in Oct21, Australia has lifted its international travel ban for citizens and will be added to Singapore’s VTL on 8 November 2021.

Three properties in Australia and two in Singapore have been block booked by the government until 1Q22. With international travel returning, ART will periodically review whether government business remains relevant or if the asset should be converted to take on leisure demand.

Picking up two more PBSAs in the US. Wildwood Lubbock was acquired on 21 September 2021 for S$94.8mn, at an entry yield of 5.1%. Located in Texas, the PBSA serves students attending Texas Tech University. It is fully booked for AY2021 (Sep21 to Aug22). Bed rates have increased 5% from the preceding academic year, AY2020. Acquisition of ART’s fourth PBSA asset, Seven07, is estimated to be completed in mid-November 2021. The S$112.4mn asset is located in Illinois and serves students attending the University of Illinois Urbana-Champaign. Entry yield of 4.5% is expected to increase to 4.8% on the back of 8% YoY growth in bed rates. Seven07 is fully leased for AY2021 and has secured bookings for 50% of beds for AY2022 in just two months after opening AY2022 for booking. Post-acquisition, this segment will account for 11% of AUM, up from 5% as at Dec20, bringing ART closer to its’ 15-20% medium-term target for the extended stay segment. Theses extended stay assets have maintained occupancies above 95% in 2020 and have long average lengths of stay of one year, providing ART with stable income.

Maintain ACCUMULATE and DDM-based TP of S$1.19

FY21 recovery has been more laboured that we initially anticipated. As such, we tweak our FY21e-25e DPU estimates between -5.8%-0.3%, with no impact to our DDM-derived TP of S$1.19. We have incorporated a more gradual pace of recovery as well as incorporating the two PBSA acquisitions, Wildwood Lubbock and Seven07.

With most of ART’s markets gradually opening up, ART is poised tap the recovery in domestic and international travel demand. Recent acquisitions in the extended stay segment, reopening of voco Times Square South post refurbishment in 4Q21 and opening of Lyf One-North in 4Q21 will aid DPU recovery.

ART remains our top pick in the sector owing to its mix of stable and growth revenue, geographical diversification and potentially faster recovery than peers from its exposure to markets with countries with large domestic tourism markets. Current share price implies FY21e/22e DPU yield of 4.1%/5.2%.