Ascott Residence Trust - Phillip Securities 2019-12-16: Steady And Unstoppable

ASCOTT RESIDENCE TRUST (SGX:A68U)

Ascott Residence Trust - Steady And Unstoppable

Income stability through geographic diversification and lease structure.
A beneficiary of Riding on Sponsor’s brand name and rapid growth. Inorganic growth potential with a S$1bn debt headroom and ROFR pipeline of 20 properties.
Maintain ACCUMULATE with an unchanged target price of S$1.36.

ASCOTT RESIDENCE TRUST (SGX:A68U) is an owner-operator of serviced residences (SRs). Post-merger with ASCENDAS HOSPITALITY TRUST (SGX:Q1P), Ascott Residence Trust will own 88 properties totalling 16,000 keys spanning 15 countries. c.85% of gross profit is derived from its eight key markets – namely, the US, Japan, UK, France, Vietnam, Singapore, China and Australia.
Ascott Residence Trust’s serviced residences, excluding its US properties, are operated under three core brands – Ascott, Citadines and Somerset. Ascott Limited, Ascott Residence Trust’s sponsor, is a wholly-owned subsidiary and the hospitality arm of Mainboard-listed CAPITALAND LIMITED (SGX:C31).
See Ascott REIT Share Price; Ascott REIT Target Price; Ascott REIT Analyst Reports; Ascott REIT Dividend History; Ascott REIT Announcements; Ascott REIT Latest News.

46% of gross profit is stable, derived from master leases (ML) and management contracts with minimum guaranteed income (MCMGI) while the remaining 54% is derived from management contracts (MC), thus providing growth opportunities.
Geographic diversification across 15 countries reduces the impact of country-specific factors affecting corporate and leisure travel.

Accommodation operators have been aggressively growing scale by increasing the number of keys under management. The number of keys under management by Sponsor, Ascott Limited, has been growing at a CAGR of 36.5%.
Ascott Limited currently has c.112,400 keys under management across 32 countries and plans to operate 160,000 keys by 2023. Ascott Residence Trust will benefit from the increased brand awareness as 71 out of 88 SRs and business hotels are operated under the three Ascott brands – Ascott, Citadines, Somerset and Lyf.

Ascott Residence Trust has the ability to grow inorganically owing to their right-of-first-refusal (ROFR) pipeline of 20 properties and a sizable debt headroom of c.S$1bn.

The rise of select-service can be attributed in part to the cultural shift of preference for value and indifference towards certain services offered at full-service hotels. Lower running costs (opex and capex) of select-service accommodations represents higher profit margins for operators. Select-service hotels account for c.63% hotel development pipeline in the US according to STR, a sharp increase from an average of 25% in the early 2000s.

Maintain ACCUMULATE with an unchanged target price of S$1.36 with forecasted FY19e/FY20e DPU yield of 5.5%/5.6%. (Note: PSR has previously raised target price to S$1.42. See Ascott Residence Trust - Solid Portfolio With Catalyst Ahead.)
The merger of Ascott Residence Trust-Ascendas Hospitality Trust increases the free float and presents a re-rating catalyst – inclusion into the FTSE Nareit Developed Index.

Natalie Ong Phillip Securities Research | https://www.stocksbnb.com/ 2019-12-16

SGX Stock Analyst Report ACCUMULATE MAINTAIN ACCUMULATE 1.420 SAME 1.420