Ascott Residence Trust - Maybank Kim Eng 2019-05-02: Broader Base, Slower Growth

ASCOTT RESIDENCE TRUST (SGX:A68U)

Ascott Residence Trust - Broader Base, Slower Growth

We slightly lowered NPI/DPU estimates after 1Q19 results but retain Target Price and HOLD rating.
ASCOTT RESIDENCE TRUST (SGX:A68U)'s 1Q19 DPU rose 7.4% y-o-y (-32.6% q-o-q) with better performance across its properties in Singapore, Philippines and the UK. Gross profit was driven by a 12.1% y-o-y rise in its management contracts, and stronger RevPAUs in Singapore and the UK.
We have factored in its recent deals and our DDM-based Target Price stays at SGD1.25 (COE 7.6%, LTG 2.0%).
Ascott Residence Trust’s Singapore concentration is falling, its returns-and-risk profile is influenced by global macros, and a 2% DPU CAGR lags its peers.
We prefer CDL HOSPITALITY TRUSTS (SGX:J85) (Rating: BUY; Target Price; SGD1.80; see report: CDL Hospitality Trusts - Maybank Kim Eng 2019-05-02: Recovery Slower, But Intact) and FAR EAST HOSPITALITY TRUST (SGX:Q5T) (FEHT SP, SGD0.66, Rating: BUY; Target Price: SGD0.80; see report: Far East Hospitality Trust - Maybank Kim Eng 2019-04-25: Slow Start; Recovery Underway) as they are better leveraged to a Singapore RevPAR rebound than Ascott Residence Trust.

Ascott Residence Trust's 1Q19 revenue increased 2.8% y-o-y while gross profit (excluding FRS 116 adjustments) rose by 1.7% y-o-y. Portfolio RevPAR rose 3.1% y-o-y to SGD133 as double-digit improvements in Singapore and the UK helped offset the weaker performance in the US (-4.8% y-o-y) and Vietnam (-1.4% y-o-y).
Gross profit from its ‘stable’ income rose 1.7% y-o-y, as its French master leases were renewed at lower rents, while there were 17.8-20.0% y-o-y jumps in Singapore and the UK.
Gross profit from its ‘growth’ income rose 12.1% y-o-y on stronger demand in Singapore, Japan and Philippines.

Ascott Residence Trust's Singapore revenue and gross profit increased 23.1% y-o-y and 35.0% y-o-y on stronger RevPAU, which jumped 21.8%. But its Singapore AUM is set to fall (from 20.8% to 15.4% of total AUM) with its proposed Ascott Raffles Place divestment, while its maiden co-living development property at one-north does not open until 2021.
We remain positive on the market’s growth fundamentals against rising demand and tapering 2018-2022 supply, but Ascott Residence Trust’s exposure remains low relative to other hospitality REITs.

Ascott Residence Trust's balance sheet should be strengthened by its recent deals in Singapore and Australia. Both its SGD353.3m divestment of Ascott Raffles Place at 2.0% exit yield and the AUD60.6m (SGD58.8m) acquisition of Citadines Connect Sydney Airport at > 6.0% EBITDA yield are set to be completed in May 2019.
Investors are likely awaiting corporate activity, ie, a possible merger with ASCENDAS HOSPITALITY TRUST (SGX:Q1P).

Chua Su Tye Maybank Kim Eng Research | https://www.maybank-ke.com.sg/ 2019-05-02

SGX Stock Analyst Report HOLD MAINTAIN HOLD 1.250 SAME 1.250