Ascott Residence Trust (ART SP) - DBS Research 2017-06-01: Takes Third Bite Of The Big Apple

Ascott Residence Trust (ART SP) - DBS Vickers 2017-06-01: Takes Third Bite Of The Big Apple ASCOTT RESIDENCE TRUST A68U.SI

Ascott Residence Trust (ART SP) - Takes Third Bite Of The Big Apple

  • Acquires Doubletree at Times Square West for US$106m on a proforma NPI yield of 6.2%.
  • ART expects 0.8% accretion to FY16 proforma DPU.
  • Acquisition builds scale in New York and increases exposure to growing demand.

What’s new 

  • ART announced that it has acquired its third property in Manhattan, DoubleTree by Hilton Hotel New York, Times Square South for US$106m (S$148.4m). The 224-room freehold property will be acquired on a FY16 proforma EBITDA yield of 6% and US$473,000 per key. This compares to ART’s first acquisition of Element New York Times Square West on a proforma EBITDA yield of 6.2% and US$398,000 per key for the 98-year leasehold property. 
  • Average occupancy for DoubleTree by Hilton Hotel New York, Times Square South was 95.2% from 2013-2016 with 95% of top line coming from room revenue. 
  • Financial close for the acquisition is targeted to be in July 2017.

Financial impact 

  • ART estimates a 0.8% DPU accretion to FY16 proforma DPU. The DPU accretion is based on ART funding the acquisition via S$92.4m worth of bank borrowings and S$65.8m from the potential issuance of perpetual securities.
  • Post acquisition, gearing will rise to c.36% from 35.2% (post recent rights, divestments and acquisition of Ascott Orchard Singapore and German properties). Assuming the acquisition is 100% debt funded, we estimate that gearing will rise to c.38%. 
  • In addition, exposure to US by value will increase from 9.7% to 12.3%.

Our take 

  • We are generally positive on the acquisition given the expected DPU accretion as well as ART's increasing scale and exposure to the growing demand in New York on the back of various commercial developments and New York being a major tourist location. However, there is some uncertainty over future revenue per available room (RevPAR) performance. 
  • Growth in supply over the past few years had partially contributed to RevPAR for the Times Square area falling from US$251 in 2014 to US$242 in 2015 and US$236 in 2016. Based on ART’s assessment, the future growth in supply which we understand is expected to grow by 4-5% p.a. between 2017 and 2019 should be absorbed, resulting in stable, if not rising, RevPAR over the medium term.
  • For now, we maintain our BUY call and TP of S$1.16, pending ART’s final decision on how it intends to fund the acquisition.

Melvin SONG CFA DBS Vickers | Derek TAN DBS Vickers | 2017-06-01
DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 1.160 Same 1.160