Ascott Residence Trust - DBS Research 2019-01-10: Cashing In


Ascott Residence Trust - Cashing In

  • Disposal of Ascott Raffles Place for S$353m at an estimated 2% exit NPI yield.
  • Sale price c.64% above the latest valuation.
  • Transaction highlights the inherent value of the stock which the market has under appreciated.
  • Maintain BUY, S$1.25 Target Price.

What’s New

Sale of Ascott Raffles Place 64% higher than latest valuation

  • ASCOTT RESIDENCE TRUST (SGX:A68U) announced the sale of Ascott Raffles Place Singapore for S$353.3m to an unrelated third party. Based on press reports, the buyer is Mr Cheong Sim Lam, a private investor whose family developed International Plaza and the Hyatt Regency Singapore.
  • The sale price is 64.3% above the property’s last valuation of S$215m as at 31 December 2018 and the original purchase price of S$220m in 2012.
  • We estimate the property was sold on an exit NPI yield of around 2%.
  • Ascott Raffles Place is a serviced apartment with 146 units. The property sits on a 999-year leasehold land and was first opened in 2008. The property is located in Raffles Place, in the heart of Singapore’s CBD.
  • Ascott REIT is expected to realise an estimated net gain of S$134m with the net proceeds to be deployed into new investment opportunities that offer better growth prospects. We suspect Ascott REIT may look to redeploy its capital into Europe or US which offers higher assets yield or yield spreads.
  • The disposal is expected to be completed in May 2019.
  • According to Ascott REIT’s estimates, proforma FY17 NAV per unit is expected to increase to S$1.31 from S$1.27 post the sale, while proforma FY17 DPU will drop 2.4% to 6.92 Scts.
  • Assuming all the proceeds are used to pare down debt, we expect gearing to drop to c.32% from 36.5% at end September 2018.

Our thoughts

  • With Ascott REIT having announced earlier its intention to rebalance/optimise its portfolio and with previous market speculation that Ascott REIT was looking at selling Ascott Raffles Place, we believe this transaction may not surprise some investors, albeit the timing was uncertain. Nevertheless, we believe the market should react positively to the large capital gain from the disposal as well as management being “unemotional” about its properties and willing to sell them at the right price.
  • We do not see this transaction as an “exit” from Singapore or Singapore’s CBD but rather an optimization of its capital. After the disposal Ascott REIT will still own three properties in Singapore, Ascott Orchard Singapore, Somerset Liang Court and Citadines Mount Sophia. In the pipeline are potential acquisitions of the serviced residence component at CapitaSpring and Funan located in the vicinity will re-anchor its position as a major landlord in the serviced residence space in Singapore. These two properties are currently owned by Ascott REIT’s Sponsor CAPITALAND LIMITED (SGX:C31) and its sister REITs.
  • In addition, this transaction supports our investment thesis that there is significant “hidden” value in ART and the 10-15% discount to book that Ascott REIT has been trading at over the past year is unwarranted given its track record of adding value as demonstrated by c.S$304m worth of net divestment gains from ten property disposals which raised S$1.3bn over the last ten years.
  • Thus, we reiterate our BUY call and Target Price of S$1.25.

Mervin SONG CFA DBS Group Research | Derek TAN DBS Research | https://www.dbsvickers.com/ 2019-01-10
SGX Stock Analyst Report BUY MAINTAIN BUY 1.250 SAME 1.250