Ascott Residence Trust - CIMB Research 2016-03-14: Bulking up in the US

Ascott Residence Trust - CIMB Research 2016-03-14: Bulking up in the US ASCOTT RESIDENCE TRUST A68U.SI 

Ascott Residence Trust - Bulking up in the US 

  • ART announced its second acquisition in the US today - the Sheraton Tribeca New York Hotel - for US$158m or S$218m (US$428,000/key). 
  • Acquisition is accretive by all counts. Property acquired at > 6.8% NPI yield. 
  • Acquisition to be financed via US onshore debt of c.US$100m and private placement, launched concurrently with the acquisition. 
  • Maintain Hold with unchanged DDM-based target price (S$1.19). ART is our preferred pick in the hospitality sub-sector. 


Bulking up in the US 

  • ART announced its second acquisition in the US - the Sheraton Tribeca New York Hotel - for US$158m or S$218m, which translates in excess of 6.8% NPI yield. It is a 369-unit four-star hotel, with limited service offerings. The hotel is located in the heart of Tribeca, one of the priciest residential neighbourhoods in Downtown Manhattan, close to the Financial District, Soho, Little Italy and Chinatown. Post-acquisition, the US will make up 10% of ART’s AUM. 
  • ART’s leasehold interest in the land is 99 years (expiring Oct 2112). The property will be managed by a third party and will continue as a Sheraton-branded hotel under a franchise agreement. 
  • Sheraton Tribeca is relatively new, as it started operations in Oct 2010. In 2015, the property achieved c.7% yoy growth in RevPAR (ADR of US$250), occupancy rate of above 90% and GOP margin of 65%. Its operating metrics are similar to those of Element New York Times Square West. With limited 4-star hotel supply emerging in Downtown Manhattan and strong demand fundamentals, management believes that the property will continue to deliver strong performance. 

An accretive-acquisition, financed by 57% debt and 43% equity 

  • The acquisition will be part-financed by US onshore debt, comprising a 5-year fixed rate (3.0-3.4%) loan of c.US$100m. The remaining amount will come from a private placement, launched concurrently with the acquisition (issue price range of S$1.055-1.085 for 94.8m new shares). 
  • Post‐acquisition, we estimate that FY15 pro-forma DPU will increase by 1.5-1.6%, while NPV/unit will increase by 5%, mainly because the property was bought at an acquisition price lower than the independent valuation of US$166m. 

Maintain Hold, preferred pick in the hospitality sub-sector 

  • Pending completion of the private placement, we maintain our Hold rating and DPU estimates. Our model has factored in an acquisition pipeline. 
  • If investors want exposure to the hospitality sub-sector (on which we have an Underweight rating), our preferred pick is ART. We forecast 0.2% yoy growth in DPU for ART in 2016 (vs. average DPU decline of c.-1% for its peers). We like ART for its diversified global portfolio. Furthermore, its serviced residences focus on the long-stay segment, which is not as vulnerable to the supply glut.



LOCK Mun Yee CIMB Securities | YEO Zhi Bin CIMB Securities | http://research.itradecimb.com/ 2016-03-14
CIMB Securities SGX Stock Analyst Report HOLD Maintain HOLD 1.19 Same 1.19



Advertisement



MOST TALKED ABOUT STOCKS / REITS OF THE WEEK



loading.......



ANALYSTS SAY


loading.......