THE recent proposed acquisition of 9 overseas properties is expected to raise the Ascott Residence Trust : HMN 0% (ART)‘s distribution per share (DPS) by 1.1 per cent to 5.9 per cent from FY2022 to FY2024, if it goes through.

Given the trust’s pre-emptive external finance ratio, low cost of borrowing at 1.7 per cent and a comfortable gearing of 37.8 per cent, CGS-CIMB analyst Lock Mun Yee believes there may be further acquisitions in future.

In her report on Wednesday (Aug 17), Lock raised her target price on the hospitality reit to S$1.25 while keeping an “add” call as she believes the trust is likely to benefit from an increasing income resilience.

She noted that about 92 per cent of the acquisition portfolio’s gross income comes from stable sources stemming from the extended-stay assets — such as the 5 Japan rental housing assets and the US student accomodation asset which have average length of stays of 2 and 1 year respectively — as well as the master-leased serviced residences in France and Australia.

“This increases ART’s stable income from 69 to 71 per cent of gross profit and long-stay asset under management from 17 to 19 per cent post-acquisition, bringing it closer to its medium term asset under management target allocation of 25 to 30 per cent for extended-stay assets,” she said.

While an accretive acquisition and a quick recovery from Covid-19 could add to upside potential for the Reit, Lock thinks investors should also be wary of downside risks from a slower-than-forecasted recovery.

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Units of ART traded flat at S$1.14 as at lunch break on Wednesday.