Ascott Residence Trust - UOB Kay Hian 2019-05-02: 1Q19 Results Slightly Below

ASCOTT RESIDENCE TRUST (SGX:A68U)

Ascott Residence Trust - 1Q19 Results Slightly Below

ASCOTT RESIDENCE TRUST (SGX:A68U)’s overall RevPAU grew 3% to S$133. Singapore and the UK were top contributing markets while Tokyo and Melbourne benefitted from stronger leisure demand. Maintain BUY with unchanged target of S$1.46.

ASCOTT RESIDENCE TRUST (SGX:A68U) posted 1Q19 adjusted DPU of 1.33 S cents (+4% y-o-y), due to better operating performance, lower financing costs and higher one-off realised exchange gain of S$1.0m (S$2.6m this year vs S$1.6m last year). The realised exchange gain of S$2.6m in 1Q19 arose from repayment of foreign currency bank loans with 15% deposit received for divestment of Ascott Raffles Place Singapore, announced in Jan 19.

Ascott Residence Trust's 1Q19 revenue grew by 3%, mainly due to stronger performance from the properties in Singapore, the UK and the Philippines. 1Q19 DPU forms 19% of our full-year estimates.

Gross profit for 1Q19 of S$54.6m comprised S$17.9m (33% of total gross profit) from serviced residences on Master Leases, S$5.7m (10%) from serviced residences on management contracts with minimum guaranteed income, and S$31.0m (57%) from serviced residences on management contracts.

Ascott Residence Trust's RevPAU grew 3% y-o-y to S$133/day on the back of stronger demand and operating performances for markets like Singapore (+22%, stronger market demand at all Singapore properties), the Philippines (+25%), UK (+17%), Japan (+8%, stronger leisure demand), and Australia (+4%, higher leisure demand in Melbourne) y-o-y, in local currency terms.
RevPAU declined across Indonesia (-8%), Malaysia (-7%), the US (-5%), in local currency terms. Indonesia portfolio was dragged by ongoing renovation at Somerset Grand Citra, while Malaysia RevPAU was affected by competition. The US portfolio was also dragged by ongoing renovation at Element New York Times Square West.

Ascott Residence Trust has comfortable debt headroom of S$900m (before reaching 45% regulatory limit). Management expects interest rates to remain stable in 2019, as the US Fed takes on a dovish stance.
About 80% of Ascott Residence Trust’s borrowings are on fixed rates, with 6% of the outstanding loans due to expire in 2019.

Management noted that the operating environment remains uncertain, given competition from new supply and rising costs. However, Ascott Residence Trust’s geographically diversified presence and resilient income streams (43% of stable income from master leases and management contracts with minimum guaranteed income) can continue to minimise the impact of such risks.

Management guided that they continue to seek accretive investment opportunities, particularly in developed markets. Ascott Residence Trust recently acquired Citadines Connect Sydney Airport for an expected yield of over 6%, following the sale of Ascott Raffles Place Singapore for SS$353.3m (exit yield of c.2%). Both transactions are set to complete by May 19.

Our valuation is based on DDM (required return: 7.0% and terminal growth of 2.0%).

Jonathan KOH CFA UOB Kay Hian Research | Peihao LOKE UOB Kay Hian | https://research.uobkayhian.com/ 2019-05-02

SGX Stock Analyst Report BUY MAINTAIN BUY 1.460 SAME 1.460