Ascott Residence Trust - Maybank Kim Eng 2019-01-30: Less Room For Recovery

ASCOTT RESIDENCE TRUST (SGX:A68U)

Ascott Residence Trust - Less Room For Recovery

We have fine-tuned estimates following 4Q18 results. ASCOTT RESIDENCE TRUST (SGX:A68U)'s 4Q18 DPU of SGD2.15cts was in line with our and consensus estimates driven by a 4.8% y-o-y rise in its growth income, helped by stronger demand in the US, Japan and Singapore.
We raised DPUs on slightly higher RevPAU assumptions and introduce FY21 estimates. As a result, we raise DDM-based Target Price 4% to SGD1.20 (COE 7.8%, LTG 2.0%). We expect Ascott Residence Trust’s returns-and-risk profile will continue to be influenced by global macros, while its 2% DPU CAGR lags peers. Accordingly, we reiterate HOLD.

We prefer CDL HOSPITALITY TRUSTS (SGX:J85) and FAR EAST HOSPITALITY TRUST (SGX:Q5T) which are better leveraged to a Singapore RevPAR rebound.

Ascott Residence Trust’s 4Q18 revenue/ gross profit rose 1.5% y-o-y/ 2.5% y-o-y as contributions from its existing properties and a full-quarter accretion from Ascott Orchard in Singapore (acquired Oct 2017) helped offset divestments in Shanghai and Xi-an.
Gross profit from its stable income was flat, and a rent reduction for renewal of its French master leases was offset by stronger demand in Singapore and Spain. Growth income from management contracts rose 4.8% y-o-y/ 3.6% q-o-q with stronger contributions from US, Japan and Singapore on improving RevPAUs (US: +5.8% y-o-y, Japan: +2.7% y-o-y).

Ascott Residence Trust’s Singapore revenue rose 6.7% y-o-y on stronger RevPAU, up 7.0% y-o-y, but gross profit fell 7.4% y-o-y on higher staff costs and marketing expenses. Ascott Residence Trust will look to deepen its Singapore core over the medium term with its maiden co-living development property at one-north set to open in 2021.
Meanwhile, the Ascott Raffles Place divestment at a 3% cap rate is targeted to complete in May 2019. The transaction, together with other recent deals continues to support a positive sector growth outlook on the back of demand recovery and tapering 2018-2021 supply.

Management is focused on acquisitions (in Australia, Europe and US) and looks to accelerate growth to increase its developed markets exposure as it eyes inclusion in the NAREIT index to boost trading liquidity.
Aggregate leverage at 36.7% as at end-Dec 2018 could improve to ~32% from its divestment proceeds, implying an estimated SGD1.0b in debt headroom.

Chua Su Tye Maybank Kim Eng Research | https://www.maybank-ke.com.sg/ 2019-01-30

SGX Stock Analyst Report HOLD MAINTAIN HOLD 1.200 UP 1.150