Ascott Residence Trust - CGS-CIMB Research 2021-01-27: Enhancing Income Stability


Ascott Residence Trust - Enhancing Income Stability

Ascott Residence Trust's 2HFY20 RevPAU declined 69% y-o-y but improved q-o-q

  • Ascott Residence Trust (SGX:HMN)’s FY20 DPU of 3.03 cents (-60% y-o-y) came in above expectations (116.7% of our FY20F forecast) as the REIT topped up S$45m (S$5m in 1HFY20, S$40m in 2HFY20), or ~1.45 cents. It also released S$5m income retained from 1HFY20.
  • FY20 revenue/gross profit declined by 28%/41% y-o-y, due to divestment of assets in Singapore and Vietnam, while RevPAU declined 61% y-o-y to S$59m (2HFY20 RevPAU -69% y-o-y), partially offset by additional contribution of S$101.8m from the acquisition of A-HTrust portfolio and properties in Australia.
  • ADR was stable q-o-q, while occupancy improved to mid-40% in 4Q2020 (1H20 occupancy ~50%), leading to better RevPAU q-o-q.
  • Portfolio valuation declined 7% y-o-y, mainly due to weaker performance of the properties. We understand independent valuers are pricing in a recovery in 2-4 years.

China the most resilient country; Japan, UK, US remain weak

  • China saw the least impact from COVID-19, with a 25% y-o-y RevPAU decline in 2H20, supported by long stays and recovery in domestic demand.
  • Japan (-85% y-o-y), UK (-86% y-o-y) and the US (-79% y-o-y) experienced the largest y-o-y RevPAU decline in 2HFY20. We understand that rent collection from lessees remained healthy at 80%.

Asset recycling continued; made maiden acquisition in PBSA

  • Ascott Residence Trust divested/is divesting four assets at ≥35% premium to book value and an exit yield of 2-5%, with a total net gain of S$108.2m. It also made its first foray into purpose-built student accommodation (PBSA) in Atlanta, the US, for S$126.3m at ~5% yield.
  • Despite COVID-19, property occupancy remained high at ~95%. With a long 1-year WALE, the property will enhance the stability of Ascott Residence Trust. The acquisition will be completed by 1Q2021 with a DPU accretion of 4.4%.
  • Japan rental housing and US PBSA will account for 7% of total assets post acquisition, and Ascott Residence Trust hopes to bring this segment to 10-15% in the near term.
  • Despite the pandemic, Ascott Residence Trust’s balance sheet remains robust with gearing at 36% (S$1.9bn debt headroom) and S$1.05bn of liquidity reserves, which could cover ~3 years of fixed cost under a zero-income scenario. No lease expiry for master leases in 2021.

Downgrade to HOLD

EING Kar Mei CFA CGS-CIMB Research | LOCK Mun Yee CGS-CIMB Research | https://www.cgs-cimb.com 2021-01-27
SGX Stock Analyst Report ADD MAINTAIN ADD 1.08 UP 1.050