Ascott Residence Trust - OCBC Investment 2019-11-22: Unlocking Value

ASCOTT RESIDENCE TRUST (SGX:A68U) | SGinvestors.io ASCOTT RESIDENCE TRUST (SGX:A68U)

Ascott Residence Trust - Unlocking Value

  • Partial sale of 15,170 square metres GFA.
  • New Somerset serviced residence with a hotel license.
  • Expected to open in 2024.



Joining the consortium to redevelop Liang Court Site



Land lease is refreshed to 99 years

  • The new Somerset serviced residence will offer 192 units, comprising 84 studio, and 108 units of 1 or 2 bedroom, with a flexibility to cater the needs of both short-stay and long-stay travellers. The property’s land lease is refreshed from 57 years to 99 years.
  • Total expected development expenditure is approximately S$300m, with a target EBITDA yield of 4%. The new serviced residence is expected to open in phases from 2H 2024.
  • Management sees that it is an opportune time to recycle ASCOTT RESIDENCE TRUST’s capital by redeveloping the aging Somerset Liang Court serviced residence which has been in operation for over 35 years and is likely to incur high AEI costs in the future.


Short-term impact on DPU

  • Impact on ASCOTT RESIDENCE TRUST’s gearing will be minimal as the redevelopment is mainly funded by the net divestment proceeds. As at 30 September 2019, ASCOTT RESIDENCE TRUST’s gearing was 33% with a debt headroom of about S$1.1b, assuming gearing limit of 45%. However, we note that there will be an income shortfall due to the redevelopment period and DPU is estimated to drop 4.6% after the sale, on a pro forma FY2018 basis.
  • That said, the net proceeds of the sale could be used for distributions to smoothen DPU volatility in the interim.
  • We upgrade ASCOTT RESIDENCE TRUST from Hold to BUY, with unchanged FV estimate of S$1.41.





Chu Peng OCBC Investment Research | https://www.iocbc.com/ 2019-11-22
SGX Stock Analyst Report BUY UPGRADE HOLD 1.410 SAME 1.410



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