ASCOTT RESIDENCE TRUST (SGX:HMN)
Ascott Residence Trust - Enhancing Income Stability
- Ascott Residence Trust's FY20 DPU of 3.03 cents came in above forecast due to capital distribution.
- RevPAU improved q-o-q. Acquired first PBSA asset to enhance stability.
- Downgrade Ascott Residence Trust to HOLD due to lack of catalyst. Ascott Residence Trust's share price is trading at 5-year mean of 0.9x P/BV.
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
- See Ascott Residence Trust Share Price; Ascott Residence Trust Target Price; Ascott Residence Trust Analyst Reports; Ascott Residence Trust Dividend History; Ascott Residence Trust Announcements; Ascott Residence Trust Latest News.
- We increase our Ascott Residence Trust's FY20-22F DPU forecast by 4-10% as we factor in the acquisition and divestments and S$10m capital distribution for FY21F. Ascott Residence Trust has S$200m of undistributed capital gains. While we raise target price, we downgrade the stock to HOLD.
- Recovery remains volatile and hinges on the effective of vaccines. Valuation has recovered to its 5-year mean of 0.9x P/BV.
- Upside/Downside risks include more accretive acquisitions and capital distribution/weaker-than-expected RevPAU.
EING Kar Mei CFA
CGS-CIMB Research
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LOCK Mun Yee
CGS-CIMB Research
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https://www.cgs-cimb.com
2021-01-27
SGX Stock
Analyst Report
1.08
UP
1.050
