Ascott Residence Trust - OCBC Investment 2017-06-01: Acquisition Of Third Property In NYC

Ascott Residence Trust - OCBC Investment 2017-06-01: Acquisition Of Third Property In NYC ASCOTT RESIDENCE TRUST A68U.SI

Ascott Residence Trust - Acquisition Of Third Property In NYC

  • EBITDA yield of 6.0%.
  • Trading at 5.4% FY17F yield.
  • FV increases slightly to S$1.095.

Acquisition of New York hotel 

  • Ascott Residence Trust (ART) has entered into a conditional sale and purchase agreement to acquire a hotel property in Midtown Manhattan, NY, USA for an aggregate consideration of US$106.0m (~S$148.4m) or US$473k per key at an EBITDA yield of 6.0%. 
  • An independent valuation pegged the property value at US$109.2m. The acquisition will be funded by bank loans and/or perpetual securities. 
  • On a pro forma basis, the acquisition is expected to increase historical FY16 DPU by 0.8% from 7.23 S cents to 7.29 S cents. NAV is expected to remain at 1.24 S cents1. 
  • Following the acquisition, ART’s US portfolio will make up 12.3% of ART’s total asset size. We expect the acquisition to be completed by end-Jun or Jul.

Averaged 95.2% occupancy from 2013 to 2016 

  • The freehold asset is a 25-storey building consisting of 224 guestrooms, and is located near key catchment areas and transport nodes such as Times Square, Penn Station and Port Authority Bus Terminal. 
  • The property will continue to be managed by third party operator and franchised under the DoubleTree by Hilton brand. We note that the asset has delivered a robust operating performance with an average occupancy of 95.2% from 2013 to 2016.

Medium-term boost expected from Hudson Yards 

  • Significantly, we note that the property stands to benefit as the nearby US$30b Hudson Yards – the largest private development in US history – opens in stages. 
  • Hudson Yards is expected to contain > 18m sq ft of new office, residential, and retail space. While the entire development is due for a 2025 completion, 88% of 5.8m sq ft of office space is already committed as of Dec 2016, with firms such as Blackrock, Kohlberg Kravis Roberts, and Time Warner moving their headquarters to Hudson Yards. 
  • Post the acquisition, ART’s gearing is expected to increase slightly from 35.2% to 36.0%. After adjustments, our fair value increases slightly to S$1.095.
  • Against yesterday’s closing price, ART is trading at 5.4% FY17F yield and 6.3% FY18F yield.
  • Maintain HOLD with a fair value of S$1.095.

Deborah Ong OCBC Investment | 2017-06-01
OCBC Investment SGX Stock Analyst Report HOLD Maintain HOLD 1.095 Up 1.090