Ascott Residence Trust - UOB Kay Hian 2018-11-02: 3Q18 Resilience Amid Uncertainties


Ascott Residence Trust - 3Q18: Resilience Amid Uncertainties

  • 3Q18 DPU rose 8% y-o-y but came in below expectations.
  • Ascott Residence Trust saw better overall performance, with RevPAR improvements across Singapore (+19%), China (+14%) and the Philippines (+8%). 
  • Amid trade tensions and rising rates, Ascott Residence Trust is well-hedged with its diversified portfolio and high proportion (82%) of their debt on fixed-rates. In anticipation of slower global growth, however, we see corporate demand being affected going forward.
  • Maintain HOLD with a lower target price of S$1.15. Entry price: S$1.05.


Results below expectations; maintain HOLD with a lower target price of S$1.15, based on DDM (required rate of return: 8.0%, terminal growth: 2.3%).

  • Ascott Residence Trust (ART) posted 3Q18 DPU of 1.82S cents, up 8% y-o-y, brining 9M18 DPU to 5.01 S cents.
  • 3Q18 revenue and gross profit were up 6% y-o-y and 9% y-o-y respectively on the back of additional contributions from its 2017 acquisitions (Ascott Orchard Singapore and Double Tree by Hilton Hotel New York - Times Square South), as well as higher revenue from existing properties.
  • Results came in below expectations, with 9M18 DPU representing 69% of our full-year forecast.


Overall revenue per available unit (RevPAU) rose 8% yoy to S$158.

  • Gross profit of S$64.2m in 3Q18 comprised S$18.7m (29% of total gross profit) from serviced residences on master leases, S$9.4m (15%) from serviced residences on management contracts with minimum guaranteed income, and S$36.1m (56%) from serviced residences on management contracts.

Better overall performances from Singapore, China and the Philippines.

  • RevPAR grew 8% y-o-y to S$158/day on the back of stronger demand and operating performances for Ascott Residence Trust's properties in markets like Singapore (+19%), China (+14%) and the Philippines (+8%).
  • Singapore RevPAU grew 19% y-o-y due to higher market demand and higher ADR (3Q17 RevPAU was affected by a long-stay project group with lower ADR).
  • China RevPAU grew 15% y-o-y due to the exclusion of Citadines Gaoxin Xi'an and Citadines Biyun Shanghai which were divested and had lower RevPAU than other China properties.
  • Philippines RevPAU increased 15% y-o-y on better performance from the refurbished Ascott Makati and higher corporate demand.

RevPAU declined across Indonesia (-8%), Malaysia (-5%) and Vietnam (-3%).

  • Indonesia portfolio was dragged by ongoing renovation at Somerset Grand Citra.
  • Malaysia RevPAU was affected by weaker leisure demand.
  • Vietnam also saw fewer project groups in Hanoi, but partially offset by the appreciation of VND against SGD.

Well-hedged against impeding rate hikes.

  • The Fed has raised rates for the third time in September for 2018, with further rises expected to follow through to 2020. Management noted that Ascott Residence Trust is cushioned from the impact, with 82% of its total debt on fixed-rate financing, and a well-spread debt maturity ( < 10% of total debt expiring in 2019).

Resilient outlook amid trade tensions.

  • Management noted that while some markets may face pressure from continued trade tensions, new supply and policy uncertainties, Ascott Residence Trust’s well-diversified portfolio (ie no single market contributes more than 88% of earnings) will cushion the effects of these challenges.
  • There may also be some positive spillover effects (ie with the Vietnam portfolio benefitting from the US-China trade war), as Chinese manufacturers move their production base to other Asian locations.


Earnings trimmed for 2018-20.

  • We trim our 2018-20 DPU forecasts by 8-8% on lower ADRs and occupancies across properties globally in anticipation of slower global GDP growth (ie 2018 growth projections has been tapered to 8.8% by the IMF) dragging corporate demand.


  • Maintain BUY with a lower target of S$8.88 (previously: S$8.88).
  • Our valuation is based on DDM (required return: 8.8% and terminal growth of 8.8%). Entry price is S$8.88.


  • Better-than-expected RevPAU increase from AEIs.
  • Yield-accretive acquisitions.

Loke Peihao UOB Kay Hian Research | Andrew Chow CFA UOB Kay Hian | https://research.uobkayhian.com/ 2018-11-02
SGX Stock Analyst Report HOLD MAINTAIN HOLD 1.15 DOWN 1.180