Ascott Residence Trust - OCBC Investment 2021-01-29: Growing Into Longer-stay Assets For Income Stability & Diversification


Ascott Residence Trust - Growing Into Longer-stay Assets For Income Stability & Diversification

  • Ascott Residence Trust's 2H20/FY20 DPU fell 52%/60% y-o-y.
  • Acquisition of student accommodation property.
  • Acquisition will be financed by debt and divestment proceeds.

Ascott Residence Trust's 2H20 results above expectations on top-up of S$50m

  • Ascott Residence Trust (SGX:HMN)'s 2H20 results beat expectations. Revenue fell 39% y-o-y to S$161.4m while gross profit was down 53% y-o-y to S$61.1m in 2H20, weighed by lower contributions across its portfolio due to COVID-19 and divestment of two properties, but partially offset by additional contribution from the Ascendas Hospitality Trust portfolio post-merger and the acquisition of Quest Macquarie Park Sydney.
  • Ascott Residence Trust released S$5m of distributable income retained in 1H20 and distributed a one-off partial divestment gain of S$40m to mitigate the impact of COVID-19. As such, 2H20 DPU came in at 1.99 cents (-52% y-o-y).
  • On a full-year basis, Ascott Residence Trust's FY20 DPU was down 60% y-o-y to 3.03 cents or 112% of our full-year forecast, above our expectations.

Portfolio ADR remained stable while occupancy improved q-o-q

  • Ascott Residence Trust’s 2H20 portfolio RevPAU fell 69% y-o-y to S$49 while full year RevPAU declined 61% y-o-y to S$59. Although ADR remained stable in 4Q20, portfolio occupancy improved marginally from 40% in 3Q to mid-40% in 4Q20. Japan, UK, and US were among the worst performing countries for Ascott Residence Trust while China and Vietnam led the recovery.
  • Overall, countries catering to long-stay travellers and with larger domestic markets remained more resilient than those catering to transient travellers.

Maiden acquisition of student accommodation property in Atlanta, US

  • Ascott Residence Trust announced the expansion of its investment strategy to include student accommodation properties and the acquisition of Signature West Midtown (EBTIDA yield: 5%; Average occupancy: 95%), a freehold student accommodation in Atlanta, US. The transaction is expected to be completed by 1Q21. Total acquisition cost is ~S$130.2m which will be financed through a mix of debt and divestment proceeds.
  • Ascott Residence Trust received ~S$380m from its divestments in 2020. Management shared that Ascott Residence Trust has ~S$200m of undistributed capital gains which could be used to smoothen the DPU loss from divestments and impact of COVID-19. The acquisition is expected to be DPU accretive with pro-forma FY20 DPU increasing 4.4% assuming funding structure of 40% debt and 60% divestment proceeds.

Tapping growth opportunities in the student accommodation market

Chu Peng OCBC Investment Research | https://www.iocbc.com/ 2021-01-29
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