Ascott Residence Trust - OCBC Investment 2016-07-21: One-Off Boost To DPU

Ascott Residence Trust - OCBC Investment 2016-07-21: One-Off Boost To DPU REIT ASCOTT RESIDENCE TRUST A68U.SI 

Ascott Residence Trust - ONE-OFF BOOST TO DPU

  • 2Q16 DPU boosted by one-off gain.
  • Longer-term uncertainties over Brexit.
  • Lower FV but maintain BUY.

2Q16 adjusted DPU slightly below expectations

  • Ascott Residence Trust’s (ART) 2Q16 gross revenue jumped 21.0% YoY to S$119.4m, underpinned by contribution from properties which it acquired in 2015 and Apr this year, but partially offset by the divestment of six rental housing properties and decline in revenue at some of its existing properties. 
  • DPU for the quarter rose 1.9% YoY to 2.13 S cents, but this was boosted by a one-off realised exchange gain of S$3.5m arising from repayment of foreign currency bank loans with the divestment proceeds from Fortune Garden Apartments. Excluding this, adjusted DPU came in at 1.91 S cents, which was a dip of 8.6% and was slightly short of our expectations. 
  • For 1H16, ART’s revenue grew 19.2% to S$224.9m and accounted for 46.5% of our FY16 projection. DPU inched up 0.8% to 3.88 S cents and made up 47.4% of our full-year forecast (adjusted 1H16 DPU formed 44.7% of our FY16 estimate).

UK operational performance still stable, but uncertainties over longer-term

  • Following the UK’s vote to leave the European Union, management highlighted that the operational performance of its UK assets remain stable for now. While there are uncertainties over corporate accounts over the longer-term, leisure travel to the UK may increase as a result of the weaker GBP. 
  • ART’s UK portfolio RevPAU fell 5% YoY in 2Q16 but this was largely due to ongoing refurbishment at Citadines Barbican London. 
  • Its overall portfolio RevPAU grew 10% YoY to S$142 and this was attributed to higher RevPAU of properties acquired in 2015 and 2016.

Maintain BUY

  • We pare our FY16 and FY17 DPU forecasts by 2.1% and 2.6%, respectively, as we factor in lower gross profit margins in our model. 
  • In addition, we also raise our cost of equity assumption from 7.8% to 7.9% to take into account the increased uncertainties on the operating landscape and weaker business sentiment caused by the Brexit vote. 
  • Correspondingly, our fair value estimate is trimmed from S$1.29 to S$1.24. However, we retain our BUY rating given the expected potential total returns of ~15%.

Wong Teck Ching Andy CFA OCBC Securities | 2016-07-21
OCBC Securities SGX Stock Analyst Report BUY Maintain BUY 1.24 Down 1.29