Ascott Residence Trust - OCBC Investment 2019-01-10: New Year, New Look


Ascott Residence Trust - New Year, New Look

  • Divestment of Ascott Raffles Place.
  • Higher pro forma NAV.
  • Fair Value increases to S$1.18.

Sale price is 64.3% above 31 Dec 2018 valuation

  • Yesterday, ASCOTT RESIDENCE TRUST (SGX:A68U) announced that it has entered into a sale and purchase agreement with an unrelated third party (the “Purchaser”) to divest Ascott Raffles Place Singapore for S$353.3m, which is 64.3% above the valuation of S$215.0m as at 31 Dec 2018. The net gain from the sale is estimated to be ~S$134.0m, post transaction-related expenses.
  • Net sale proceeds will be used to pare down debts, to fund the development of properties such as lyf on-north Singapore, or to fund potential acquisitions, among other potential purposes.
  • The Purchaser has paid 15% of the sale price as deposit and the balance of the sale price on completion of the sale, expected to be 9 May 2019.

Pro forma NAV is higher than actual

  • FY17 DPU would fall 2.4% from 7.09 S cents (actual) to 6.92 S cents (pro forma), if the sale had been completed on 1 Jan 2017. For 9M18, Ascott Raffles Place accounted for ~3% of Ascott Residence Trust’s gross profit.
  • In terms of NAV per share, FY17 NAV per share would increase 4.8% from S$1.25 (actual) to S$1.31 (pro forma), given that Ascott Raffles Place’s sale price was significantly above the book value.

Upgrade to BUY

  • While we were not surprised by the Ascott Raffles Place divestment per se given Ascott Residence Trust’s active asset recycling strategy, we were impressed that Ascott Residence Trust has managed to sell such a substantial asset significantly above its book value. After adjustments, our fair value increases to S$1.18.
  • We currently assume that Ascott Residence Trust will make additional capital distributions out from net gains till the end of FY19 to smoothen out the loss in distributable income from the divestment.
  • We continue to like Ascott Residence Trust’s portfolio of assets with its strong brand recognition and high geographical diversification. Gearing stood at a reasonable rate of 36.4% as at 30 Sep 2018, and we expect it to decrease to ~32% by end- 2019 after the divestment is completed and proceeds are used to pay down debt, assuming no acquisitions are made.
  • Ascott Residence Trust is currently trading at a 6.3% dividend yield for both FY19F and FY20F. Given the increase in fair value, we upgrade Ascott Residence Trust from Hold to BUY.

Deborah Ong OCBC Investment Research | 2019-01-10
SGX Stock Analyst Report BUY UPGRADE HOLD 1.18 UP 1.030