Ascott Residence Trust - CIMB Research 2018-01-02: Stability And Diversity Priced In

Ascott Residence Trust - CIMB Research 2018-01-02: Stability And Diversity Priced In ASCOTT RESIDENCE TRUST A68U.SI

Ascott Residence Trust - Stability And Diversity Priced In

  • We project 4.5% total returns for Ascott Residence Trust (ART) in 2018F, and believe that its stability and diversity have been priced in by the market.
  • Its Singapore serviced residences (SRs) recorded a 9% yoy drop for 9M17 RevPAU, and we expect its recovery to be relatively gradual vs. hotels.
  • We see S$150m of acquisitions in FY18F (5.5% entry yield), lifting FY19F DPU by 2%. Maintain Hold with a higher TP. 
  • There could be some upside should ART distribute some of the S$48.3m disposal gains from divestment of the two Chinese properties.



Stability and diversity priced in 

  • Ascott Residence Trust (ART)’s greatest strength, in our view, is its large and diversified global portfolio of serviced residences which allows for stable and sustainable distributions. On the flip side, its strength can also be its biggest weakness as an uneven macro growth outlook would mean that the REIT would not fire on all cylinders. 
  • At this juncture, we prefer REITs which are angled for the upturn in Singapore hospitality. Singapore makes up 12% of ART’s AUM. Its Singapore SRs continue to hurt, recording a 9% yoy drop for 9M17 RevPAU.


China, Japan and US are ART’s three largest markets 

  • In Sing dollars, 3Q17 gross profit from China improved 27% yoy. RevPAU (in RMB) climbed 4% yoy due to higher revenue from the refurbished Somerset Xu Hui Shanghai.
  • Gross profit from the US (in S$) improved 5% yoy due to DoubleTree by Hilton Hotel NY (acquired on 16 Aug 2017). RevPAU (in US$) decreased by 8% due to new supply. 
  • 3Q17 gross profit from Japan (in S$) fell 27% yoy due to the depreciation of the JPY and competition from new supply. RevPAU (in JPY) fell 7% yoy.


Renewed master leases for four SRs in France 

  • In Dec 2017, Ascott Residence Trust (ART) renewed four French properties with its sponsor for a term of 3+3+3 years (rent review at the end of each three year term). The overall rental reversion is -4% owing to one particular property. Nonetheless, the renewal should not have a material effect on distributions. 
  • For 2018F, we understand that another six French properties would be up for renewal. We expect the rents upon renewal to be more or less the same.


Incorporating S$150m of acquisitions at 5.5% entry yield 

  • Upon completion of the acquisition of Ascott Orchard Singapore and divestment of Citadines Biyun Shanghai and Citadines Gaoxin Xi’an, we estimate gearing to increase to 36% (3QFY17: 31.9%). Assuming a 40% cap on gearing, we estimate that ART could have c.S$350m of debt headroom. 
  • Given that ART has historically made acquisitions every year, we now factor in S$150m worth of acquisitions at 5.5% entry NPI yield, which would contribute from FY19F onwards, lifting FY19F DPU by 2%. Target markets could include Australia, Japan, Europe and the US.


Maintain Hold with higher TP of S$1.20 

  • We reduce our FY17F-18F DPU by 0.9-1.2% as we decrease US contributions. Our FY19F DPU is lifted by 1.3% on potential accretive acquisitions. Our DDM-TP also rises on slightly lower COE of 7.6% (prev.7.8%). 
  • Maintain Hold as we forecast total returns of c.4.5% for 2018F. Our TP implies 6.3% FY19F yield and 0.97x current P/BV.


Upside/downside risks 

  • There could be some upside to our estimates should ART distribute some of the S$48.3m disposal gains from the planned divestment of the two Chinese properties.
  • Downside risks could come from slower macro growth and unfavourable acquisitions.







YEO Zhi Bin CIMB Research | LOCK Mun Yee CIMB Research | http://research.itradecimb.com/ 2018-01-02
CIMB Research SGX Stock Analyst Report HOLD Maintain HOLD 1.20 Up 1.160



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