ASCOTT RESIDENCE TRUST (SGX:HMN)
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
- The proposed acquisition will pave the way to enhance Ascott Residence Trust’s long-term resilience and diversification. Ascott Residence Trust plans to increase its asset allocation in longer-stay assets such as student accommodation and rental housing for income stability (10-15% of total AUM in the interim, and 15- 20% in the long term). Post-acquisition, rental housing and student accommodation will contribute ~7% Ascott Residence Trust’s AUM.
- 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.
- After updating our model to account for the acquisition and divestments, coupled with the change of master lease structure for certain properties, our fair value estimate for Ascott Residence Trust increases from S$1.20 to S$1.24.
Chu Peng
OCBC Investment Research
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https://www.iocbc.com/
2021-01-29
SGX Stock
Analyst Report
1.24
UP
1.200
