Daiwa has downgraded Ascott Residence Trust (ART) to Hold from Outperform, saying upside for the unit price may be limited.
“Overall, we have little doubt that ART, under almost any reopening scenario, is likely to deliver double-digit distribution per unit (DPU) growth over several years,” Daiwa said in a note Tuesday.
Daiwa noted 2021’s DPU was a relatively low S$0.0432, 46 percent below the 10-year average of around S$0.08.
“We believe the real issue is the extent to which this upbeat DPU-growth outlook, which still has a high degree of forecast uncertainty, in our view, has been discounted by the market given its strong unit-price performance year-to-date,” the analyst note said.
Units of Ascott Residence Trust were at flat at S$1.16 at 3:53 p.m. SGT, but that represented at 12.5 percent rise year-to-date.
Daiwa raised its 2023-24 DPU forecasts by 2 percent to 3 percent on stronger recovery forecasts for some markets, such as the U.K., but kept its target price at S$1.16 as 10-year bond yields have risen. Indeed, the investment bank noted the REIT’s current yield spread of 2.1 percent over bond yields is the lowest since the Global Financial Crisis (GFC) period.
In addition, Daiwa said that while the REIT is “well positioned” to make more acquisitions, those will likely be riskier, with narrower investment yields and with DPU accretion more difficult.