Ascott Residence Trust - Phillip Securities 2021-05-06: Recovery Dragged Out


Ascott Residence Trust - Recovery Dragged Out

  • No financials in this operational update by Ascott Residence Trust (SGX:HMN). RevPAU recovered by 10% q-o-q (-47% y-o-y) despite re-introduction and extension of lockdowns in some countries. 1Q21 portfolio occupancy increased from 45% in 4Q20 to 50%, lifted by block bookings.
  • Ascott Residence Trust divested Somerset Xu Hui Shanghai at 171% premium to book. Acquired rental-housing asset in Sapporo at 4% EBITDA yield.
  • DDM-based (COE 8.5%) target price for Ascott Residence Trust unchanged at S$1.17.
  • We lower FY21e/22e DPUs by 0.9%/3.6% reflect divestment of Somerset Xu Hui and acquisition of Sapporo asset, partially offset by S$20mn of capital distribution assumed for FY21e (FY20: S$45mn). Recovery timeline may be more protracted in the face of virus mutations and new waves. Downgrade to ACCUMULATE from BUY.

The Positives

Portfolio RevPAU increased 10% q-o-q.

  • Ascott Residence Trust's RevPAU improved in 1Q even though it was a seasonal lull for the hospitality sector and COVID-19’s resurgence triggered fresh lockdowns. Countries affected included Australia, China, France and the UK.
  • Portfolio occupancy increased from 45% in 4Q20 to 50%, supported by block bookings in Australia, Singapore and the UK. RevPAU in these three markets grew 46%, 14% and 16% q-o-q. RevPAU in China (-9%), Japan (-15%), the UK (-50%) and Vietnam (-4%) were affected by lockdowns.
  • Five out of Ascott Residence Trust’s 17 French properties remained closed due to muted demand and lockdowns. However, these assets continued to pay fixed rents under master-lease agreements.

Stable-income properties anchored earnings.

  • Ascott Residence Trust’s master leases, management contracts with minimum guaranteed income and longer-stay properties such as rental housing and student accommodation contributed over three-quarters to its 1Q21 gross profit. Countries with long stays, such as Indonesia, the Philippines and Vietnam, were more resilient with smaller y-o-y RevPAU declines.

Portfolio reconstitution on track.

  • During the quarter, Ascott Residence Trust divested Somerset Xu Hui Shanghai at a 171% premium to book value of S$79.2mn. It realised S$135.4mn of gains. The divestment will be completed in 3Q21.
  • Delivering on its strategy to increase “stable” revenue, Ascott Residence Trust also acquired a 127-unit rental-housing property in Sapporo, Japan, for S$25.5mn. The asset was opened in March 2020 and is within walking distance to Ascott Residence Trust’s first rental-housing asset in Sapporo. Slated for completion in 2Q21, the property is pro-forma DPU-accretive with an EBITDA yield of 4%.
  • After Ascott Residence Trust’s Shanghai divestment, gearing is expected to fall from 36.1% to ~35%.

The Negatives

Arrears from Park Hotel Clarke Quay.

  • Park Hotel was block-booked by the Singapore government from April to December 2020. It has been re-booked by the government for May-June 2021. Despite operational cashflow, the master leasee has not fulfilled its rent obligations. Ascott Residence Trust has issued a letter of demand to recover S$5.4mn in accrued rents. In addition, S$3.5mn in rents under the Statutory Repayment Schedule was outstanding as at 31 March 2021.
  • Ascott Residence Trust has S$6.8mn in security deposits, equivalent to six months of rent, for Park Hotel. Negotiations for the recovery of the arrears are underway and Ascott Residence Trust is optimistic of a resolution. The master lease will expire in 2023. Ascott Residence Trust’s options for this property include lease extension, repositioning the hotel or divestment. The asset is well-located in Clarke Quay and is expected to benefit from the reopening of international borders as well as a redeveloped Liang Court in 2025.

10% of rebates to struggling tenants.

  • Ascott Residence Trust continued to support tenants that were ged and will calibrate its support as they recover.


Shorter income visibility due to shorter forward bookings

  • Corporate bookings and domestic leisure demand have picked up. Ascott Residence Trust has received 3Q/4Q bookings from some corporate guests who intend to stay longer. However, as the pandemic remains in a state of flux, leisure guests are booking less than one month in advance.

Acquisitions likely in extended-stay asset class

  • The extended-stay segment comprises rental housing and purpose-built student accommodation whose average length of stay is about a year. These assets’ occupancy can reach a high 95% throughout the year, providing stable income for Ascott Residence Trust. Currently at 7% of its AUM, Ascott Residence Trust intends to increase the figure to 10-15%.

Downgrade to ACCUMULATE, unchanged DDM-based target price of S$1.17

Natalie Ong Phillip Securities Research | https://www.stocksbnb.com/ 2021-05-06
SGX Stock Analyst Report ACCUMULATE DOWNGRADE BUY 1.170 SAME 1.170