Ascott Residence Trust - Maybank Kim Eng 2018-11-01: On A Broader Base

ASCOTT RESIDENCE TRUST (SGX:A68U)

Ascott Residence Trust - On A Broader Base

Ascott Residence Trust's 3Q18 DPU was in line with consensus and our estimates at 1.82 SGD cts, up 7.7% y-o-y but down 1.1% q-o-q. Growth was driven by 9% y-o-y increases in both its stable and growth income, helped by acquisitions in Singapore and the US.
We trim DPU by 1% but keep our DDM-based Target Price at SGD1.15 (COE 7.9%, LTG 2.0%).
Global macros are expected to drive Ascott Residence Trust's returns-and-risk profile and keep its DPU growth at an estimated 2%.

We prefer CDL Hospitality Trusts (SGX:J85) and Far East Hospitality Trust (SGX:Q5T) as they should be better leveraged to a Singapore RevPAR rebound. HOLD.

Revenue rose 6.0% y-o-y/ 3.1% q-o-q with contributions from newly-acquired Ascott Orchard in Singapore and DoubleTree by Hilton in New York. Demand was also stronger in the UK and Belgium, where RevPAR rose 7% and 2% y-o-y respectively. This offset two China asset divestments.
Gross profit from its stable income - master leases and management contracts with minimum rent guarantees - rose 8.9% y-o-y following its Singapore acquisition.
Growth income from management contracts jumped 9.4% y-o-y and 5.2% q-o-q, with its US transaction completed in 3Q17. Its three US deals so far have skewed contributions towards its growth income, but we believe RevPAR will need time to rise against a surge in US room supply.
We forecast FY18-20E DPU growth of 1-2%, behind peers’ 4-6%.

Its Singapore revenue, gross profits and RevPAU jumped 19%, 27% and 19% y-o-y. On a same-store basis, we estimate revenue and gross-profit growth of 14% and 16% y-o-y respectively.
Ascott Residence Trust has acquired a 4,549 sqm site at one-north in Buona Vista for SGD62.4m or SGD850 psfppr to develop its maiden co-living property. This is fully debt-funded at a SGD117.0m development cost, implying a 6% yield-on-cost. The project will include 324 serviced-residence units managed by Ascott as a lyf-branded property. Targeting millennials, it is set to open in 2021. We see firm demand upon completion given 95-98% occupancies at surrounding business parks.

Earlier-than-expected pick-up in corporate demand.
Better-than-anticipated RevPAUs.
Accretive acquisitions where cap rates exceed cost of funds, or divestments at low cap rates which unlock asset values.

Sizeable increases in SR room supply without commensurate growth in demand.
Deterioration in global economy, resulting in declines in RevPAUs.
Significant FX volatility could impede hedging and affect DPUs.
Sharper-than-expected rise in interest rates could increase cost of debt and affect earnings, with higher cost of capital lowering valuations.

Chua Su Tye Maybank Kim Eng Research | https://www.maybank-ke.com.sg/ 2018-11-01

SGX Stock Analyst Report HOLD MAINTAIN HOLD 1.15 SAME 1.15