Ascott Residence Trust - CGS-CIMB Research 2019-07-30: In-line 1HFY19 Results


Ascott Residence Trust - In-line 1HFY19 Results

  • ASCOTT RESIDENCE TRUST (SGX:A68U)’s 1HFY19 DPU of 3.43 Scts (+8 y-o-y) was in line at 48.5% of our full-year forecast.
  • Growth income segments continued to improve while its healthy gearing supports potential acquisitions.
  • Maintain HOLD at a higher DDM-based Target Price of S$1.31 as we raised our beta assumption.

1HFY19 results highlights

  • ASCOTT RESIDENCE TRUST (SGX:A68U)’s 1HFY19 DPU of 3.43 Scts (+7.6% y-o-y) was in line with our expectations at 48.5% of our FY19 forecast. This was achieved on the back of a 2.1% increase in revenue and 9.4% rise in gross profit.
  • The improvements came from better contributions from Japan, Singapore, UK, Vietnam and USA. Portfolio 1HFY19 RevPAU improved 3% y-o-y to S$146.
  • Excluding one-off realised exchange gains arising from the repayment of foreign currency bank loans, 1HFY19 DPU increased 2% y-o-y to 3.17 Scts.

Growth income segments offset weaker stable income segment

  • Gross profit from master leases (28.2% of 1HFY19 total gross profit) was down 6% y-o-y in 1H19, dragged by lower rent upon renewal of six master leases in France in 4Q18. This was offset by higher management contract income (60% of total 1HFY19 gross profit) mainly due to properties in Philippines (refurbishment at Ascott Makati) and Vietnam (stronger market demand).
  • In addition, contributions from management contracts with minimum guaranteed income (12.6% of 1HFY19 gross profit) also improved across UK, Belgium and Spain. There was higher corporate and leisure demand in Singapore and UK as well as improved take-up from leisure demand in Belgium, Spain and Japan.

Healthy gearing

  • Gearing stood at 32.8% at end-2Q19 with an effective interest cost of 2.1%. Based on a ceiling of 45%, Ascott Residence Trust has potential headroom of S$1.1bn to tap acquisition growth opportunities. Potential locations include Australia, UK and the US.
  • Balance sheet metrics are robust with 88% of its debt on fixed rates and low refinancing needs in 2019.

Maintain HOLD

  • We maintain our FY19-21F DPU forecasts but raise our DDM-based Target Price to S$1.31 as we adjust our beta from 0.70 to 0.65 to be more in line with its current beta and more diversified entity following the proposed merger with ASCENDAS HOSPITALITY TRUST (SGX:Q1P).
  • We maintain our HOLD call on Ascott Residence Trust.
  • Upside risks could come from accretive acquisitions and downside risks from weaker-than-expected RevPAU performance from the management contracts segment.

EING Kar Mei CFA CGS-CIMB Research | LOCK Mun Yee CGS-CIMB Research | https://research.itradecimb.com/ 2019-07-30
SGX Stock Analyst Report HOLD MAINTAIN HOLD 1.31 UP 1.220