Ascott Residence Trust - OCBC Investment 2017-04-24: Strategic Recycling of Assets

Ascott Residence Trust - OCBC Investment 2017-04-24: Strategic recycling of assets ASCOTT RESIDENCE TRUST A68U.SI

Ascott Residence Trust - Strategic recycling of assets

  • Boosted by Sheraton acquisition.
  • Trading at 5.6% FY17F yield.
  • FV will drop to S$1.09.

1Q results within expectations 

  • Ascott Residence Trust’s (ART) 1Q17 revenue increased 5.4% YoY to S$111.3m, mainly due to additional revenue of S$5.8m from the acquisition of Sheraton Tribeca New York last year which was partially offset by the decline in revenue of S$1.8m from existing properties (mainly Singapore and the UK). 
  • Gross profit fell 2.9% YoY to S$47.2m despite the increase in revenue largely due to the recognition of operating lease expense on a straight-line basis in the United States. 
  • We note that 1Q tends to be a seasonally much weaker quarter for the US assets. The amount distributable to unitholders’ dropped 8.0% YoY to S$25.1m, while DPU dropped 13.7% YoY from 1.75 S cents in 1Q16 to 1.51 S cents in 1Q17. This makes up 24.7% of our full-year DPU forecast, and we consider the results to be within expectations. 
  • Stripping out the net realized exchange gain of S$3.0m, 1Q16 DPU would have been 1.57 S cents.

Singapore RevPAU declined 11% YoY 

  • We note that Singapore RevPAU decreased 11% YoY from S$220 in 1Q16 to S$196 in 1Q17, mainly due to weaker market demand and a reduction in corporate accommodation budgets.
  • This was within our expectations for a high single-digit to low double-digit decline in Singapore RevPAU this year. Going forward, we look to continued strong RevPAR growth in Vietnam and the Philippines following the refurbishments at Somerset Ho Chi Minh City and Somerset Millennium Makati.

Gearing to fall to 36.6% 

  • Following the rights issue, Ascott Orchard Singapore (AOS) acquisition, German acquisitions and the divestment of 18 rental housing properties in Japan, the gearing would be 36.6%. 
  • We assume the divestment of the 18 rental housing properties in Japan will be completed in Mid-May, and adjust our revenue and gross profit assumptions accordingly. 
  • We view the divestment positively, given that it is a strategic recycling of assets. After tweaking our RevPAU growth assumptions for the various markets, our fair value decreases slightly from S$1.105 to S$1.09. 
  • Against Friday’s closing price, ART is trading at 5.6% FY17F yield and 6.4% FY18F yield. 
  • Maintain HOLD with a fair value of S$1.09.

Deborah Ong OCBC Investment | 2017-04-24
OCBC Investment SGX Stock Analyst Report HOLD Maintain HOLD 1.09 Down 1.105