Ascott Residence Trust - OCBC Investment 2020-11-03: Recovery In RevPAU Q-o-q

ASCOTT RESIDENCE TRUST (SGX:HMN)

Ascott Residence Trust - Recovery In RevPAU Q-o-q

Ascott Residence Trust's 3Q20 portfolio occupancy improved to 40% from 30% in 2Q.
Domestic demand supported recovery in large domestic markets.
6 properties remain closed.

Ascott Residence Trust (SGX:HMN)’s 3Q20 portfolio Rev PAU fell 70% y-o-y to S$47 but improved 27% q-o-q, on the back of easing travel restrictions, reopening of temporarily closed properties, recovery in domestic travel in some markets and block bookings from government.
As of 29 Oct 2020, 93% of Ascott Residence Trust's properties are operational while six properties remain closed due to low occupancy or to minimise costs.

3Q RevPAU fell 91%, 50%, 63%, 78% and 30% y-o-y respectively for Ascott Residence Trust’s key markets i.e. Japan, Singapore, Australia, US and China. China saw strong recovery in 3Q on the back of long stays and healthy domestic demand.
Overall, countries catering to long-stay travellers such as China, Singapore and Vietnam, Indonesia and Philippines continued to be more resilient than those catering to transient travellers such as Japan, UK and US.
Ascott Residence Trust's portfolio occupancy improved from 30% in 2Q to 40% in 3Q. Occupancies continued to be supported by bookings for self-isolation, healthcare personnel and workers affected by border shutdown, student accommodation for some countries such as Singapore, Australia, and US, France, UK.

As at 30 Sep 2020, Ascott Residence Trust’s gearing stood at 34.6% with debt headroom of S$2.2b, assuming a gearing limit of 50%. It has S$1.0b of available funding which is sufficient to cover ~2 years of fixed cost. 6 master leases are expiring in 2020 and 10 due for expiry in 2021 (comprising 4 French master leases which were extended on variable rent terms for 1 year).
There could be risks of renewing these master leases on variable rent terms. Management shared that this could provide them the flexibility and opportunity to secure higher rents when the pandemic is over after 1 or 2 years’ time.
While the outlook remains uncertain with the resurgence of COVID-19 cases in Europe/UK, we believe that Ascott Residence Trust’s focus on corporate, long-stay serviced residences could provide a buffer to the fall in occupancy and room revenue.
Factoring in the risks of non-renewal of the master leases, and resurgence of the pandemic in Europe/UK, we increase our COE from 8.0% to 8.3%, and our fair value estimate decreases from S$1.03 to S$0.97.
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Chu Peng OCBC Investment Research | https://www.iocbc.com/ 2020-11-03

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