Ascott Residence Trust - Maybank Kim Eng 2021-01-27: Recycling Capital


Ascott Residence Trust - Recycling Capital

Ascott Residence Trust's DPU in line, undemanding valuations

  • Ascott Residence Trust (SGX:HMN)’s FY20 distribution at S$0.0303/unit (-60% y-o-y) was in line with our estimate and at the higher-end of its profit guidance. The performance was on the back of softer RevPAU (-61% y-o-y), and lower gross profit (-41% y-o-y), which were cushioned by long-stays in China and Vietnam.
  • With progress on vaccine rollouts uneven, RevPAU recovery in FY21 will be slow. We continue to like Ascott Residence Trust for its diversified portfolio, concentrated long-stay assets, strong balance sheet, and S$200m in residual divestment gains which may lift capital distributions amid slower DPU growth.
  • Ascott Residence Trust's valuations are undemanding at 0.8x FY21E P/B. Our DDM-based target price stays at S$1.25 (COE 5.5%, LTG 2.0%).

China, Vietnam fared better

  • Ascott Residence Trust divested Somerset Azabu East Tokyo for JPY5.9b (S$76.2m) at ~2% exit yield (63% above book) and Ascott Guangzhou at CNY780m (S$159.0m) at ~3% exit yield (52% above book). The divestments of the two Citadines properties in France at 35-69% above book are set to complete in 1Q21.
  • Ascott Residence Trust has recycled proceeds to acquire Signature West Midtown, a 183-unit (525-bed) freehold, student accommodation asset in Atlanta, Georgia for USD95.0m (S$126.3m). The transaction, at 5% EBITDA yield implies 4.4% DPU accretion (40% debt funded, remainder from divestment proceeds), and is expected to be completed by end 1Q21.

Pivoting into US student accommodation

  • Ascott Residence Trust's properties in China and Vietnam which serve long-stays, fared relatively better in 2H20. China’s RevPAU fell 27% y-o-y (versus -30% y-o-y in 3Q20), led by a recovery in domestic demand, especially in its tier-1 cities.
  • In Singapore, occupancies were backed by government contracts for isolation purposes, while RevPAU fell 68% y-o-y (versus -50% y-o-y in 3Q20) on the back of weaker ADRs (which are set to persist in 1Q21).
  • Ascott Residence Trust extended the expiring master leases in France, with adjustments to the rent structure.
  • We see a slow RevPAU recovery, as risks remain in terms of the pace of vaccine roll-out, with significant easing of lockdowns and border controls from 2H21.

Strong balance sheet to support deals

Chua Su Tye Maybank Kim Eng Research | https://www.maybank-ke.com.sg/ 2021-01-27
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