Growing resilient income AUM, BUY
ART’s 2H21 DPU of SGD2.27cts was up c.14% YoY and c.11% HoH, helped by SGD25m in distribution top-ups (similar to 2H20) and higher contribution from stable income assets. RevPAR growth picked up pace in 4Q21, and we see recovery gaining traction in FY22. We continue to like ART for its diversified portfolio, concentrated long-stay assets, strong balance sheet, and c.SGD300m in residual divestment gains to back capital distributions amid slow DPU growth. Having scaled up on US student housing assets, ART has raised target allocation in longer-stay accommodation to 25-30% of AUM from 15-20%. We adjust FY22-23 DPUs by 2-3% from recent deals, and keep our DDM-based TP at SGD1.30 (COE 5.9%, LTG 2.0%).
Higher stable income contribution
Revenue/ gross profit increased c.30% YoY/ 49% YoY and c.13% HoH/ c.11% HoH, with stronger performances across most markets, and contributions from SGD780m in deals, comprising 11 rental housing and student accommodation assets acquired at an average 5.0% EBITDA yield, 70% of which were completed from Sep-Dec 2021. Its stable income sources contributed c.70% of FY21 gross profit, with the addition of three Japanese rental properties (in Jun 2021). We expect the remaining income from its management contracts to pick up in FY22E as accommodation demand rises alongside easing travel restrictions.
RevPAU recovery uneven, to strengthen in 2H22
Portfolio RevPAU climbed further in 4Q21 at 78% YoY/ 24% QoQ to SGD87, versus +49% YoY/+8% QoQ in 3Q21, helped by a stronger pace of reopening. While most countries reduced social distancing and travel requirements, restrictions were introduced in Dec (in Australia, China, and France) in response to the Omicron variant spread. RevPAU recovery remains on track but uneven, and should likely strengthen from 2Q22, in line with higher vaccination rates, and with the resumption of corporate travel. We have pencilled in 25% YoY RevPAU growth, and a stronger HoH in 2H22.
Strong balance sheet, deal momentum
Gearing was higher at 37.1% (from 35.3% at end-Sep 2021) with c.SGD364m of new student accommodation assets added. Its portfolio saw SGD147.3m in valuation gains, with an improving outlook and stronger performance of assets in the UK, US and France. A SGD1.9b debt headroom (50% limit) is
supportive of deals, with management expected to add to its student accommodation and rental housing segments, as it expands this from 16% (versus 5% at end 2020), towards its new 25-30% AUM target (from 15-20%).