Ascott Residence Trust - CGS-CIMB Research 2019-01-09: Disposing Ascott Raffles Place


Ascott Residence Trust - Disposing Ascott Raffles Place

  • Ascott Residence Trust is disposing Ascott Raffles Place at a 64% premium over the last valuation in Dec 2018, realising a net gain of S$134m.
  • Assuming the proceeds are used to pare down debt, its gearing will be reduced from 36.4% in 3QFY18 to 31%.
  • Trim FY19-20 DPU by ~1%. Target price remains unchanged given the minimal impact. Maintain HOLD.

Divesting Ascott Raffles Place

  • ASCOTT RESIDENCE TRUST (SGX:A68U) has announced that it has entered into an agreement to sell Ascott Raffles Place Singapore for S$353.3m to an unrelated third party.
  • Ascott Residence Trust acquired Ascott Raffles Place from The Ascott Limited in 2012. The asset is located in Singapore’s Central Business District. It is situated next to the MRT and is close to an array of dining and entertainment options.

Divesting at a 64% premium over its last valuation in Dec 2018

  • The sale price of S$353.3m is 64.3% above the property’s latest valuation of S$215m as at end-Dec 2018. Thus, Ascott Residence Trust would realise a net gain of S$134m after deducting transaction expenses.
  • The property accounted for 3% of Ascott Residence Trust’s 9MFY18 gross profit, which worked out to be about S$7m on an annualised basis, translating into a divestment yield of ~2%. The transaction is expected to be completed in May 2019.

A good opportunity to optimise unitholders’ returns

  • Ascott Residence Trust has not decided on how it will use the sales proceeds. Assuming the REIT uses the sales proceeds to reduce its borrowings, its gearing level is expected to fall from 36.4% in 3QFY18 to 31%. With the additional debt headroom, it could explore new acquisition targets or develop its own properties such as lyf one-north Singapore.

Maintain HOLD

  • We reduce our FY19-20 DPU forecasts by about 1% to reflect the loss of income from Ascott Raffles Place post disposal, partially offset by interest savings. However, our DDM-based target price remains unchanged given the minimal impact to the bottomline.
  • We maintain HOLD on the stock as we see limited rerating catalysts.
  • Upside risks include acquisition of accretive assets while downside risks include slower-than-expected PAU performance.

EING Kar Mei CFA CGS-CIMB Research | LOCK Mun Yee CGS-CIMB Research | https://research.itradecimb.com/ 2019-01-09
SGX Stock Analyst Report HOLD MAINTAIN HOLD 1.13 SAME 1.13