Ascott Residence Trust - CGS-CIMB Research 2021-03-25: First In Line To See A RevPAU Recovery


Ascott Residence Trust - First In Line To See A RevPAU Recovery

  • Ascott Residence Trust should see a faster-than-peer RevPAU recovery given its exposure to domestic demand.
  • Strong balance sheet to tide through pandemic, support inorganic growth and income top-up.
  • Positive development of COVID-19 vaccines points to a faster recovery.
  • Upgrade Ascott Residence Trust from Hold to ADD at a target price of S$1.20, implying 1.07x P/BV.

Ascott Residence Trust's 4Q2020 RevPAU improved q-o-q on better occupancy rate

  • Ascott Residence Trust (SGX:HMN)’s revenue per average unit (RevPAU) continued to decline y-o-y in 2H20, by 69% to S$49, bringing full-year RevPAU to S$59 (-61%). However, on a q-o-q basis, RevPAU improved as occupancy rose from 40% in 3Q20 to mid-40% in 4Q20.
  • Ascott Residence Trust's performance in countries with long-stay guests, such as China and Vietnam, was better than in those that traditionally depend on transient travelers.
  • Despite weak 2H20 RevPAU, Ascott Residence Trust’s portfolio continued to generate operating profits and positive cashflow with gross losses only in Malaysia (-0.1% y-o-y in 2H20), the Philippines (-0.6%) and the US (-5.9%).

Strong balance sheet for inorganic growth and income top-up

  • Ascott Residence Trust’s balance sheet remains robust, with net gearing of 36% (S$1.9bn debt headroom) and S$1.05bn in liquidity reserves as at end-FY20. It released S$5m of income available for distribution retained in 1H20 and top-up S$45m income for FY20.
  • Master lease and management contracts with minimum guaranteed income formed 67% of 2H20 gross profit. Under an unlikely zero-income scenario, Ascott Residence Trust has enough liquidity to cover its fixed cost for ~3 years. There will be no master lease expiry in 2021.
  • Supported by its strong balance sheet, Ascott Residence Trust made its first foray into purpose-built student accommodation (PBSA) in Atlanta, the US, for S$126.3m at ~5% yield despite the pandemic in Feb 21. Given its long 1-year WALE and high occupancy of ~95% despite COVID-19, the property will enhance Ascott Residence Trust’s income stability and realise a 4.4% DPU accretion, based on FY20 proforma.
  • We estimate Japan rental housing and US PBSA will account for 7% of its total assets post acquisition, and Ascott Residence Trust hopes to bring the proportion to 10-15%.

Upgrade Ascott Residence Trust from Hold to ADD, with a higher DDM-based Target price of S$1.20

EING Kar Mei CFA CGS-CIMB Research | LOCK Mun Yee CGS-CIMB Research | https://www.cgs-cimb.com 2021-03-25
SGX Stock Analyst Report ADD UPGRADE HOLD 1.20 UP 1.080