We are cautious on the hospitality sector due to the poor visibility of revenue-per-available-unit (RevPAU) and earnings during this global business, investment and tourism slump. Although ART’s serviced-residence portfolio is diversified by geography, while its customer profile includes a good mix of industries and purpose- of-stay (for business, leisure, relocation, or project), we believe its operations would be affected adversely by a prolonged recovery.
Out of a total share of debt of S$635.8m as at 31 March 2009, ART had refinancing requirements of S$111.6m (18%) for FY09, S$10.5m (2%) for FY10, S$398.5m (62%) for FY11, and S$115.2m (18%) for FY12. With a gearing ratio of 38.7% (based on a proportionate share of debt and asset value) as at 31 March, we believe an equity-fundraising exercise cannot be ruled out, given the recent track record of CapitaLand-related S-REITs.
We maintain our six-month target price of S$0.66, based on our RNG-valuation method, derived from capitalising ART’s projected FY10 operating distribution (at an average RevPAU of S$124/day) and an effective cap-rate assumption of 7.0%. ART’s target price to latest (March 2009) book value of S$1.51 is 0.44x.
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