Ascott Residence Trust - CGS-CIMB Research 2018-09-20: Venturing Into Maiden Development Project

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ASCOTT RESIDENCE TRUST SGX:A68U

Ascott Residence Trust - Venturing Into Maiden Development Project

• Ascott Residence Trust (ART) is building the first millennial co-living property to tap on the untapped demand in the one-north research and innovation business hub in Singapore.
• This greenfield expansion will generate a higher net yield of 6% and will be fully funded by debt with earnings impact to be felt only in 2021.
• Maintain HOLD with a lower target price due to limited catalysts.

Acquired land to build a co-living property

• Ascott Residence Trust (ART) has acquired a prime greenfield site for S$62.4m for its maiden development project. It will build the first co-living property in Singapore’s research and innovation business hub, one-north, Nepal Hill.
• The property, which will be branded and named as lyf one-north Singapore, has a total of 324 units. Lyf one-north is targeting to achieve Temporary Occupation Permit (TOP) by 2020 and open in 2021.

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Fully debt-funded high yield project

• Compared to acquiring completed properties, developing a greenfield project will allow the trust to have a cheaper entry cost and hence enjoy higher yields. The expected net yield on a stabilised basis is 6% versus ~4% for its existing properties in Singapore.
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• The entire project cost is estimated at about S$117m which will be fully funded by debt. Post transaction gearing will be 37.2% which is still well within the regulatory limit of 45%.

Serviced residence facing slower demand and high supply

• The performance of Singapore serviced residence segment has been weak due to the strong supply and weaker corporate demand as corporates become more sensitive to budget management. Revenue per available unit (RevPAU) of Ascott Residence Trust’s Singapore serviced residence under the management contract segment has been declining since 2012 and the performance has remained weak in recent quarters.

But this property has different concept

• However, as opposed to the existing properties which target the mainstream working professionals, lyf one-north will target the rising millennials, characterised by smaller units with larger and more communal spaces and facilities. It will be the first standalone serviced residence for hip and chic co-living in Singapore and the first co-living development in one-north precinct, a prime developing district where currently there is limited lodging supply with about 500 rooms.
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Maintain HOLD

• We reduce our FY18-FY20F DPU forecasts by 3-6% after removing our acquisition assumption, which assumed that the trust will acquire an asset which is already generating revenue. Earnings impact from the proposed project will only be felt in 2021.
• We also took the opportunity to do some house-keeping exercise. We maintain HOLD on the stock with a lower Target Price due to limited re-rating catalysts.
• Upside risks include more acquisitions and downside risks include weaker-than-expected RevPAU.

EING Kar Mei CFA CGS-CIMB Research | LOCK Mun Yee CGS-CIMB Research | https://research.itradecimb.com/ 2018-09-20

SGX Stock Analyst Report HOLD Maintain HOLD 1.12 Down 1.160