Ascott Residence Trust - Maybank Kim Eng 2019-07-31: Stable Quarter


Ascott Residence Trust - Stable Quarter

SG RevPAU bottoming out, prefer CDLHT, FEHT

  • ASCOTT RESIDENCE TRUST (SGX:A68U)’s 2Q19 DPU rose 7.6% y-o-y and in line with our/consensus estimates, due to a better performance across half of its 14 markets, which contributed 46.7% of its gross profit.
  • Gross profit was driven by a 15.7% y-o-y rise in its management contracts, and stronger RevPAUs in Europe, Japan, Singapore, the Philippines and Vietnam. 6MTD has met 47% of our full-year estimate and our forecasts are unchanged.
  • Our DDM-based Target Price rises 4% to SGD1.30 (COE 7.4%, LTG 2.0%) due to a lower risk-free rate assumption. Reiterate HOLD.
  • Ascott Residence Trust’s Singapore concentration is falling, while its returns-and-risk profile is influenced by global macros, and a 2% DPU CAGR lags peers.
  • We prefer CDL HOSPITALITY TRUSTS (SGX:J85) (BUY, Target Price SGD1.80) and FAR EAST HOSPITALITY TRUST (SGX:Q5T) (BUY, Target Price SGD0.80) as they are better leveraged to a Singapore RevPAR rebound.

In-line results, supported by ‘growth’ income

  • Ascott Residence Trust's 2Q19 revenue increased 1.5% y-o-y while gross profit (excluding FRS 116 adjustments, the Ascott Raffles Place divestment, and Citadines Connect Sydney acquisition) rose 0.3% y-o-y. Its portfolio RevPAU rose 1.9% y-o-y vs +3.1% y-o-y in 1Q19 due to stronger performances from its assets in the UK, Belgium, Spain, China, Japan, Vietnam and Singapore (RevPAU growth +2.1-16.6% y-o-y). These offset weaker results in Australia and Malaysia, with RevPAUs down 13.8-14.8% y-o-y.
  • Gross profit from its ‘stable’ income fell 4.0% y-o-y due to lower rents renewed for its French master leases mitigated by increases of 5.7-21.4% y-o-y in its other European markets. Gross profit from its ‘growth’ income rose 15.7% y-o-y on stronger demand in China, the Philippines and Vietnam.

SG growth lacks catalyst from RevPAU recovery

  • Growth in its Singapore assets has moderated with revenue and RevPAU up 2% y-o-y and due to a decrease in its AUM contribution from 20.8% to 15.8% as of end-Jun 2019 as a result of the Ascott Raffles Place divestment.
  • We remain positive on the growth fundamentals of the market against rising demand and tapering 2018-2022 supply, but Ascott Residence Trust’s exposure remains low relative to other hospitality REITs.
  • We estimate Ascott Residence Trust’s DPUs could rise by 2.0-2.5% as its AUM jumps 38% to SGD7.6b, in line with increases in revenue and gross profit following the completion of its ASCENDAS HOSPITALITY TRUST (SGX:Q1P)-merger, expected in Dec 2019.
  • Near term, acquisition upside is supported by an estimated SGD0.8-1.5b debt headroom.

Chua Su Tye Maybank Kim Eng Research | 2019-07-31
SGX Stock Analyst Report HOLD MAINTAIN HOLD 1.30 UP 1.250