ASCOTT RESIDENCE TRUST (SGX:A68U)
Ascott Residence Trust - A Slower Recovery
Adding Ascendas Hospitality Trust’s assets; FY20 DPU up 2.0%
- We revised ASCOTT RESIDENCE TRUST (SGX:A68U)’s DPUs with the completion of its merger with ASCENDAS HOSPITALITY TRUST (SGX:Q1P), which sees the latter’s units delisted on 3 Jan 2020. We estimate a 2.0% FY20 DPU rise against a 34% and 35% increase in revenue and NPI from the scheme arrangement (5% cash, 95% in ASCOTT RESIDENCE TRUST units at SGD1.30). ASCOTT RESIDENCE TRUST’s AUM grows 33% but its SG footprint has fallen on recent divestments, while Australian revenue and NPI jump to 13-21%.
- Recent macros reinforce our view of a stronger SG RevRAR recovery in 2020 and we prefer CDL HOSPITALITY TRUSTS (SGX:J85) (BUY, Target Price SGD1.80) and FAR EAST HOSPITALITY TRUST (SGX:Q5T) (BUY, Target Price SGD0.80).
- Our DDM-based Target Price rises 4% to SGD1.40 (COE 7.2%, LTG 2.0%). Reiterate HOLD.
SG’s contribution has fallen, amidst strong tailwinds
- ASCOTT RESIDENCE TRUST’s SG contribution has declined to 8% and 10% of total revenue and NPI with recent divestments, even as hospitality sector fundamentals are set to improve further, buoyed by a recovery in tourism numbers in 2H19 which have pushed hotel occupancies to 5-year highs.
- We see growth momentum into 2020 from a stronger corporate event calendar, while a tapering supply outlook could lift room rates to strengthen RevPARs. ASCOTT RESIDENCE TRUST will divest its Somerset Clarke Quay which could lower our FY20-21 DPUs by 2% with the completion of the exercise in in 1Q20.
Stable income up, low AU RevPAU visibility
- Its NPI profile should tilt towards stable income but its Australian contribution rises from 7% to 21% of revenue and from 8% to 13% of NPI, with the addition of ASCENDAS HOSPITALITY TRUST’s portfolio (six hotels valued at SGD612.2m). We remain cautious on the market’s near-term RevPAR outlook, largely due to high new supply.
- We see possible synergies with its hospitality brands, but these are likely in the medium term, with a high concentration of master lease structures (in Japan, S. Korea and SG).
Index inclusion a likely event in 1Q20
- ASCOTT RESIDENCE TRUST’s higher 82% developed market EBITDA contribution from the combined portfolio (up from 75%) and increased SGD2.4b free-float (from SGD1.6b) is above the SGD1.7b index threshold, and should place it well for an inclusion in the FTSE EPRA NAREIT Developed Index in the upcoming Mar 2020 review.
- Valuations now at 5.3% div yield and 4% DPU growth trails peers against a sector recovery.
Chua Su Tye
Maybank Kim Eng Research
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https://www.maybank-ke.com.sg/
2019-12-19
SGX Stock
Analyst Report
1.40
UP
1.350
