Ascott Residence Trust - OCBC Investment 2018-04-19: Surprise – SG Corporate Demand Is Weak!

Ascott Residence Trust - OCBC Investment 2018-04-19: Surprise – SG Corporate Demand Is Weak! ASCOTT RESIDENCE TRUST A68U.SI

Ascott Residence Trust - Surprise – SG Corporate Demand Is Weak!

Slightly disappointing, even for seasonally weak 1Q 

  • Ascott Residence Trust’s (ART) 1Q results were slightly weaker than expectations. 
  • Revenue increased by S$1.5m or 1.4% y-o-y to S$112.8m, or 21.3% of our initial full-year forecast. This was mainly due to S$8.3m additional revenue from last year’s acquisitions, offset by a S$4.0m decrease in revenue from divestments and another S$2.8m from existing properties. 
  • Recall that ART acquired two German assets in May, its third US property in August, and Ascott Orchard Singapore in Oct last year. 2017 divestments consist of 18 rental housing properties in Tokyo disposed in April. 
  • Overall, 1Q18 distributable income increased 16.1% to S$29.2m, a figure which includes a one-off realized exchange gain of S$1.6m. 
  • DPU dropped 10.6% to 1.35 S cents, or 19.3% of our initial full-year forecast. 1Q contribution to full-year DPU was ~21% in both FY16 and FY17, with 1Q being a seasonally weaker quarter because of lower gross profit from the US assets.

Group RevPAU remains largely stable 

  • Overall, Group RevPAU increased 1% y-o-y to S$129. Standouts include Belgium which saw a RevPAU increase of 29% in SGD terms due to the market recovery from the terrorist attacks in 2016. 
  • On the other hand, ART’s assets in Philippines and Vietnam suffered RevPAU declines of 21% and 10% respectively in SGD terms, as they were affected by ongoing AEI and weaker market demand respectively.

Weak corporate demand locally 

  • The 7% y-o-y RevPAU decline for ART’s SG assets took us by surprise, especially after a 6% y-o-y increase in 4Q17. From what we understand, tighter restrictions on employment pass issuance and generally less corporate travel has affected the demand for long-term stays. 
  • Going forward, management still remains cautious on corporate demand locally. Keeping this data point in mind, we focus on CDL Hospitality Trusts’ (CDLHT) and Far East Hospitality Trust’s (FEHT) upcoming results release for additional indications of corporate travel strength. 
  • After adjustments, our fair value drops slightly from S$1.16 to S$1.14. Against 18 Apr’s close of S$1.14, Ascott Residence Trust is trading at 6.0% FY18F yield. Maintain HOLD.

Deborah Ong OCBC Investment | http://www.iocbc.com/ 2018-04-19
SGX Stock Analyst Report HOLD Maintain HOLD 1.14 Down 1.160