Ascott Residence Trust - CGS-CIMB Research 2018-11-01: Acquisitions Drove Growth


Ascott Residence Trust - Acquisitions Drove Growth

  • Ascott Residence Trust's 9MFY18 DPU of 5.01 Scts came in line at 75% of our full-year estimate.
  • The stronger 9MFY18 revenue performance was mainly driven by acquisitions.
  • Maintain HOLD due to limited re-rating catalysts.

9MFY18 DPU in line with expectations

  • Ascott Residence Trust's 9MFY18 DPU of 5.01 Scts (-1% y-o-y) came in at 75% of our full-year forecast. The decline in DPU was due to the higher forex realised gain in the previous year.
  • Ascott Residence Trust's 9MFY18 revenue increased 4.4% y-o-y while gross profit increased 6.6% y-o-y, mainly due to additional contribution of S$24.9m from the 2017 acquisitions (Ascott Orchard Singapore, two properties in Germany, and DoubleTree by Hilton Hotel New York), partially offset by divestments (in Japan and China).
  • Overall RevPAU increased 5% y-o-y from S$140 to S$147 YTD Sept 2018.

Stronger master leases offset weaker management contracts

  • Gross profits from master leases (33% of group gross profits) grew 166% y-o-y to S$58m, mainly due to inorganic contribution from Ascott Orchard Singapore acquired in Oct 2017.
  • The management contracts with minimum guaranteed income segment’s 9MFY18 gross profit (13.2% of group gross profit) grew 5% y-o-y to S$23.3m, mainly driven by the contribution from UK, which rose 7% y-o-y. UK was boosted by stronger demand, higher revenue from the refurbished apartments at Citadines Barbican London as well as the stronger GBP against S$.
  • Lastly, 9MFY18 gross profit of the management contract segment (53.8% of group gross profit) declined 1% y-o-y to S$94.7m, mainly affected by China (-5% y-o-y due to divestments), Japan (-4% y-o-y due to keen competition), the Philippines (-20% y-o-y due to weaker PHP) and Vietnam (-10% y-o-y due to fewer project groups in Hanoi). The declines from these countries were partially offset by the better performance in Singapore (+10% y-o-y) and the US (+24% y-o-y).
  • Singapore performance was boosted by the lower base effect in 3Q17 as revenue was affected by a long stay project group with a lower average daily rate while US was driven by the contribution from the acquisition of DoubleTree Hilton Hotel New York (acquired in 16 Aug 2017), higher revenue from the refurbished apartments at Sheraton Tribeca New York and improved conditions in New York.

Maintain HOLD

  • We maintain HOLD on the stock at the same DDM-based target price as we see limited re-rating catalysts.
  • Ascott Residence Trust provides stable but slow income growth as it is a well-diversified trust where
  • weaker markets are usually compensated by the stronger markets and vice versa.

EING Kar Mei CFA CGS-CIMB Research | LOCK Mun Yee CGS-CIMB Research | 2018-11-01
SGX Stock Analyst Report HOLD MAINTAIN HOLD 1.120 SAME 1.120