Ascott Residence Trust - UOB Kay Hian 2019-01-30: 4Q18 In Line


Ascott Residence Trust - 4Q18 In Line

  • Ascott Residence Trust reported DPU growth of 5.4% y-o-y with healthy organic growth augmented by contribution from Ascott Orchard Singapore, which was acquired in Oct 17.
  • Maintain HOLD with unchanged Target Price of S$1.15.

Results were in line with expectations; healthy organic growth augmented by accretive acquisitions.

  • ASCOTT RESIDENCE TRUST (SGX:A68U)'s revenue grew 1.5% y-o-y in 4Q18 driven by additional contribution of S$0.4m from Ascott Orchard Singapore, which was acquired in Oct 17, and higher revenue of S$2.7m from existing portfolio of properties. This was partially offset by the reduction in contribution of S$1.1m from the divestment of Citadines Biyun Shanghai and Citadines Gaoxin Xi’an.
  • Ascott Residence Trust's 4Q18 RevPAU grew 5.2% y-o-y to S$163. ART benefitted from strong performance from the US, China and Japan. 4Q18 DPU was 2.15 cents, up 5.4%. Excluding one-off distribution of divestment gains of S$6.5m each in both 4Q18 and 4Q17, 4Q18 DPU would have increased 6.3% y-o-y to 1.85 cents.
  • Results were in line expectations, with 2018 DPU representing 101.8% of our full year forecast.
  • Gross profit from the US portfolio surged 17% y-o-y in 4Q18 due to increased revenue from the upgraded apartments at Sheraton Tribeca New York Hotel.
  • In China, excluding properties that were divested in Jan 18, gross profit grew 16% y-o-y due to more guests on long stay.
  • Japan’s gross profit rose 12% y-o-y due to stronge corporate and leisure demand in Tokyo.

Disciplined capital management.

  • Ascott Residence Trust has issued ¥5b 0.971% Fixed Rate Notes due 2025 in Sep 18 to refinance the ¥5b 2.010% Fixed Rate Notes due 2018. Interest expense was reduced by 3.1% y-o-y.
  • About 80% of Ascott Residence Trust’s total borrowings are on fixed interest rates. It has a well-spread debt maturity profile with less than 5% of debt maturing in 2019. Aggregate leverage was relatively unchanged at 36.7%.

Resilient and well diversified.

  • While the number of international travellers is expected to increase by a healthy 6% in 2019, competition from new supply and higher operating costs would pose a challenge.
  • Ascott Residence Trust has a diversified portfolio of 73 properties with 11,430 units in 37 cities spanning over 14 countries. There is minimal concentration risk. 41% of its 4Q18 gross profit was stable income from master leases and management contracts with minimum guaranteed income and weighted average tenure of contracts of five years.

Investing and refurbishing for the long haul.

  • Ascott Residence Trust completed the refurbishments for Ascott Makati, Citadines Arnulfpark Munich, Citadines Trocadéro Paris, Somerset Grand Hanoi and Sheraton Tribeca New York Hotel in 2018. It has started refurbishment works at Somerset Grand Citra Jakarta and Element New York Times Square West, which would be completed in 2019.
  • According to management, the average daily rates for refurbished properties increased 10-20% due to stronger demand.

Embarking on maiden development project.

  • Ascott Residence Trust acquired a 60-year leasehold prime site in Singapore for S$62.4m in Sep 18. It will be developed into a co-living property with 324 units in research and innovation hub, one-north. The property named lyf one-north Singapore targets the millennial segment. There are 400 companies and 800 start-ups in the vicinity.
  • Tender for the main contract is in progress. The project is scheduled for completion in 2021. Management estimated yield on cost for this development at 6%.

Divestment of Ascott Raffles Place Singapore for S$353.3m.

  • Ascott Raffles Place Singapore is a premier serviced residence with 146 rooms in a 20-storey building on a 999-year lease tenure. ART is expected to realise net gains from divestment of S$134m. The sale price of S$353.3m obtained after an extensive marketing exercise represents an attractive exit yield of 2%.
  • Proceeds from the divestment could be recycled to invest in higher yielding and accretive properties, including developing its own properties, such as lyf one-north Singapore. The sale is expected to complete in May 19.

Jonathan KOH UOB Kay Hian Research | Peihao LOKE UOB Kay Hian | 2019-01-30
SGX Stock Analyst Report HOLD MAINTAIN HOLD 1.150 SAME 1.150