Investment thesis
The proposed acquisition of 9 properties in France, Japan, Vietnam, US and Australia will increase the proportion of longer-stay asset allocation from 17% to 19%, keeping ART on track to achieve its medium-term asset allocation target of 25-30%. Longer-stay accommodation offers income stability as the hospitality properties capture growth from recovering markets.
Outlook
Worldwide international tourist arrivals in 3Q22 are expected to pick up to 65% of pre-pandemic levels, indicative of a faster recovery compared with 1H22, which stood at 46%. The Americas and Europe are leading the recovery in long-haul travel, and the share of travel between the two regions has increased.
Forward bookings indicate sustained pent-up demand, with more corporate and international travel returning, enabling ART’s properties to raise room rates and abate rising utility and labour costs. Electricity cost accounts for c.6% of OPEX. Most of ART’s electricity requirements have been hedged through fixed rate contracts. Electricity charges are passed through to tenants in US student accommodation and Japan rental housing properties, while utility usage above a certain threshold will be passed through to guests in long-staying SRs. Every 5% increase in utility cost is expected to impact FY22e DPU by c. 0.25%.
In terms of capital management, ART’s gearing of 37.5% means a debt headroom of c.S$1.8bn, leaving room for it to reach its medium term asset allocation of 25-30% for longer-stay accommodation.
Maintain ACCUMULATE, DDM-based TP maintained at S$1.24
No change in our FY22e forecast. The potential reopening of China and Japan to leisure travel are bright sparks. ART remains our top pick in this sector with its geographically diversified portfolio, range of lodging asset classes, stable income base and a strong sponsor.
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Darren has over three years of experience on the buy-side as a fund manager. During his time as fund manager, he has managed multiple funds and mandates including dividend income, growth, customised, Singapore focused and regionally focused funds. He graduated from the University of London with a First-Class Honours degree in Banking and Finance.
