Ascott Residence Trust - OCBC Investment 2016-03-16: Growing its footprint in the U.S.

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REIT ASCOTT RESIDENCE TRUST A68U.SI 

Ascott Residence Trust: Growing its footprint in the U.S. 

• Second acquisition in the U.S. 
• Financed with private placement and debt 
• Plans to further increase U.S. exposure 

Announced second hotel acquisition in New York 

• Ascott Residence Trust (ART) announced that it has entered into a conditional sale and purchase agreement to acquire a hotel known as Sheraton Tribeca New York Hotel located in Downtown Manhattan, U.S. 
• The purchase consideration is US$158m (~S$218m), which represents a 4.8% discount to the independent valuation of US$166m. This marks ART’s second acquisition in the U.S. 
• The hotel comprises 369 guest rooms, has a current occupancy rate of more than 90%, and delivered 7% YoY growth in its RevPAU in 2015. 
• Strategically located close to the financial district and other unique neighbourhoods such as SoHo and Chinatown, it is within a two minute walk from the subway station. 

Funding via private placement proceeds and debt 

• Separately, ART also announced that it has completed a private placement exercise, raising gross proceeds of ~S$100m. 94.8m new units (~6% of existing unit base) will be issued at a price of S$1.055, which is a discount of 6.6% to its closing price prior to the announcement. 
• ART intends to use ~S$98.5m of the proceeds to fund the proposed hotel acquisition. The remaining acquisition amount will be financed with onshore USD debt (likely 5-year fixed loan at cost of debt of 3.0%-3.4%). 
• On a pro forma basis, the asset will be acquired at an EBITDA yield of 6.8%, and is estimated to increase ART’s DPU by 1.5%. 
• Post-acquisition, ART’s gearing would increase from 39.3% (as at 31 Dec 2015) to 40.2%. 

Maintain BUY 

• Looking ahead, management has plans to increase its exposure to the U.S. hospitality market by up to 20% of its asset size (now 10% of AUM after completion of the acquisition). 
• We incorporate this transaction in our model and raise our FY16 and FY17 DPU forecasts by 0.7% and 1.4%, respectively. 
• Maintain our BUY rating with a marginally higher fair value of S$1.29 (previously S$1.28). 
• ART trades at FY16F distribution yield of 7.7%, which comes in close to one standard deviation above its 5-year forward average of 7.2%.

Wong Teck Ching Andy CFA OCBC Securities | http://www.ocbcresearch.com/ 2016-03-16

OCBC Securities SGX Stock Analyst Report BUY Maintain BUY 1.29 Up 1.28