Delivering On Deals
Adding AUM at 2.8% accretion
ART is raising c.SGD150m (or SGD200m including a SGD50m upsized option) to fund its latest acquisition, at 3.2-6.5% EBITDA yield. The assets should help strengthen its stable income contribution and push its long-stay assets closer to its medium-term target. Beyond an c.8% AUM and 2.8% DPU boost, we see upside to yields from recovering RevPAU. Our forecasts and SGD1.40 DDM-based TP are unchanged pending deal closure. We continue to like ART’s diversified portfolio, concentrated long-stay assets, strong balance sheet, and c.SGD300m in residual divestment gains, which could add to capital distributions amid its DPU recovery. BUY.
Buying SGD318m portfolio from sponsor
It will acquire a portfolio of nine serviced residences (SRs), rental housing and student accommodation properties in France, Japan, Vietnam, the US, and Australia from its sponsor, at a SGD318m capitalised cost (or SGD350m including development capex for the Columbia asset). The assets are well placed, and should help ART gain further foothold in its core markets. We see upside on yields, underpinned by recovering RevPAU; occupancies for the SRs (currently at 80-95%) are at or above pre-Covid levels, and we see room for this to improve as ADRs rise on the back of demand recovery.
Higher stable income, long-stay assets contribution
We expect contribution from stable income sources to increase to 71% of ART’s gross profit post-deal (from 69%), given the higher contribution from master leases (in France and Vietnam) which back its new SR properties. Meanwhile, longer-stay assets should rise to 19% of AUM (from 17%), pushing it closer to its 25-30% medium-term target. Deal flow remains strong, in our view, and should provide tailwinds to further AUM growth.
Upside from acquisitions
Gearing is set to rise to 38.5% (from 37.5% as at end-Jun 2022), as management eyes a 54-46% debt-equity funding structure, to deliver a +2.8% DPU accretion. The acquisition should boost ART’s AUM by c.8% to SGD8.3b upon completion in Nov 2022. We see SGD1.6b debt headroom (50% limit) supporting further acquisitions, as its new CEO looks to leverage on ART’s strong financial position to drive growth of its more resilient, long-stay AUM.
