ASCOTT RESIDENCE TRUST (SGX:A68U)
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
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LOCK Mun Yee
CGS-CIMB Research
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https://research.itradecimb.com/
2019-07-30
SGX Stock
Analyst Report
1.31
UP
1.220
