Ascott Residence Trust - OCBC Investment 2017-10-25: Reaping The Rewards Of Diversification

Ascott Residence Trust - OCBC Investment 2017-10-25: Reaping The Rewards Of Diversification ASCOTT RESIDENCE TRUST A68U.SI

Ascott Residence Trust - Reaping The Rewards Of Diversification

  • DPU fell 28% YoY.
  • Look forward to AOS.
  • Maintain HOLD.

3Q17 results within expectations 

  • Ascott Residence Trust's (ART) 3Q17 results were within expectations. Revenue rose 2.4% to S$126.9m or 25% of our full-year forecast, mainly due to the additional revenue of S$4.9m from the acquisitions of DoubleTree by Hilton Hotel New York and two services residences in Germany, which was partially offset by the decrease in revenue of S$1.9m from the divestments in Japan. 
  • On a same store basis, revenue remained flat YoY. DPU fell 28% YoY to 1.69 S cents, mainly due to the enlarged unit base after the rights issue launched back in Mar.

Portfolio RevPAU for mgt contracts down only 1% YoY 

  • Markets such as Singapore, Japan, and US continue to face headwinds such as an oversupply of accommodation and weaker corporate demand. Singapore RevPAU fell 10% YoY in 3Q17 while Japan RevPAU clocked a 13% decline. 
  • Despite these challenges, due to the substantial diversification of the portfolio, the decrease in 3Q17 RevPAU on a portfolio basis for assets on management contracts was limited at 1%. 
  • In terms of the best-performing markets, Belgium, Spain, and the United Kingdom have clocked +43%, +8%, and +5% YoY increases in RevPAU respectively during the quarter. 3Q17 RevPAU growth for the Philippines and Vietnam was also positive, boosted by the recent apartment refurbishments.

Trading at 6.0% FY18F yield 

  • Ascott Residence Trust's (ART) gearing decreased from 32.4% as at 30 Jun 2017 to 31.9% as at 30 Sept 2017. 
  • While we expect finance costs to increase next quarter given the completion of Ascott Orchard Singapore (AOS) on 10 Oct, we adjust our full-year finance costs downwards to account for the refinancing of bank loans at lower interest rates and repayment of bank loans with the rights issue and divestment proceeds. 
  • Do note that our FY17F DPU forecast figure excludes the realized exchange gain of S$11.9m. If we include those one-offs, our FY17F DPU would increase from 6.3 S cents to 6.8 S cents. 
  • We look forward to the contributions from AOS, though we do not find current unit prices compelling. 
  • Against yesterday’s closing price, ART is trading at 5.2% FY17F yield and 6.0% FY18F yield. As we roll our estimates forward, our fair value estimate increases from S$1.10 to S$1.11. Maintain HOLD.

Deborah Ong OCBC Investment | http://www.ocbcresearch.com/ 2017-10-25
OCBC Investment SGX Stock Analyst Report HOLD Maintain HOLD 1.11 Up 1.100