Daiwa downgraded Ascott Residence Trust to Outperform from Buy after first half results missed its forecasts on a slower-than-expected recovery due to the emergence of the Delta variant of the Covid-19 virus and on the loss of income from recent divestments.
Ascott Residence Trust reported Tuesday its distribution per stapled security (DPS) for the first half climbed 95 percent on-year to 2.05 Singapore cents from 1.05 Singapore cents in the year-ago period on divestments and termination-fee income. The trust had S$360 million in net gains from its divestments from 2019 through year-to-date 2021, ART said in a filing to SGX.
The DPU, which included a partial distribution of divestment gains of S$20 million, compared with Daiwa’s forecast for S$5 million, missed the investment bank’s forecast by 8 percent, Daiwa said in a note Tuesday.
Revenue for the January-to-June period declined 11 percent on-year to S$185 million, mainly on the absence of contributions from six properties which were all divested at a premium to book value and lower revenue from the portfolio due to the impact of the Covid-19 pandemic.
Daiwa also cut its target price for Ascott Residence Trust to S$1.14 from S$1.20 after lowering its DPU forecasts for 2021-2023 by 3 percent to 8 percent on a more modest recovery trajectory and recent investment announcements.
“We still see positive catalysts in an accelerated operational recovery as borders reopen and DPU-accretive acquisitions are announced,” Daiwa said. “However, the 12-month forward DPU yield of c.4.9 percent is lower than the S-REIT sector average of 5.1 percent and ART’s post-GFC average of 6.4 percent so the recovery looks almost fully discounted. Moreover, our DPU forecasts are highly sensitive to government restrictions and the pace of border re-openings.”
ART recently announced it acquired three rental-housing properties in Sapporo, Japan, for S$85.2 million, and a student accommodation joint venture development in the U.S. for S$73.4 million, Daiwa noted.
Units of ART ended Wednesday unchanged at S$1.03.