Ascott Residence Trust - Maybank Kim Eng 2020-01-31: Weaker Fundamentals


Ascott Residence Trust - Weaker Fundamentals

In line; prefer CDLHT, FEHT

  • Ascott Residence Trust (SGX:HMN)’s 4Q19 DPU rose 5.6%, helped by a capital distribution, otherwise it fell 10.3% y-o-y due to divestments of Ascott Raffles Place and Somerset Westlake Hanoi. Its AUM rose 31% to SGD7.4b after the AHT-merger, and NPI now tilts towards higher ‘stable income’.
  • Australian contributions are rising but growth fundamentals seem weak due to new supply, while its Singapore exposure has also fallen. Its SGD160m in residual divestment gains should help boost capital distributions amid slower DPU growth.
  • We prefer CDL Hospitality Trusts (SGX:J85) (BUY, Target Price SGD1.75) and Far East Hospitality Trust (SGX:Q5T) (BUY, Target Price SGD0.80) for RevPAU recovery in 2020.
  • We maintain our DDM-based Target Price at SGD1.40 (COE 7.1%, LTG 2.0%). HOLD.

Mixed bag – Europe performed better

  • Ascott Residence Trust's 4Q19 revenue declined 1.5% y-o-y mainly due to the Ascott Raffles Place divestment, while gross profit rose 3.0% y-o-y from the FRS 116 lease adjustments. Portfolio RevPAU dipped 1.8% y-o-y (vs a -1.9% y-o-y in 3Q19) mainly due to weaker GBP and EUR exchange rates. Its assets in Belgium, the UK, and Vietnam delivered better performances, reporting RevPAU growth of -0.4% to +8.7% y-o-y. These helped offset the weaker results in Australia, China, Japan, Malaysia, Spain and the US, with their RevPAUs down 4.0-18.5% y-o-y.
  • We see supply pressures in Australia, Japan and the US capping room rates in the near term, while its China contribution falls below 5.0% (from 7.2%) after two asset divestments in 1H20.

Stable income up, low AU RevPAU visibility

  • Gross profit from its ‘stable’ income fell 5.4% y-o-y due to a weaker EUR and after its Ascott Raffles Place sale. This was partly mitigated by stronger corporate and leisure demand at Ascott Orchard in Singapore.
  • Gross profit from its ‘growth’ income rose 8.8% y-o-y (from 6.9% y-o-y in 3Q19), with contribution from Citadines Connect Sydney Airport (May 2019), and better performance in the Philippines (RevPAU at +12.2% y-o-y). Management is looking to add assets in Europe, Japan, SG and Vietnam,

Index inclusion a near-term catalyst

Chua Su Tye Maybank Kim Eng Research | https://www.maybank-ke.com.sg/ 2020-01-31
SGX Stock Analyst Report HOLD MAINTAIN HOLD 1.400 SAME 1.400