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

ASCOTT RESIDENCE TRUST (SGX:HMN)

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.

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.

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.

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%.

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.

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

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.

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%.

We lower Ascott Residence Trust's FY21e/22e DPU forecast by 0.9%/3.6% to reflect its divestment of Somerset Xu Hui and acquisition of the Sapporo asset, partially offset by S$20mn of capital distribution assumed for FY21e (FY20: S$45mn). The recovery timeline may be more protracted in the face of virus mutations and new waves of the virus.
See

Natalie Ong Phillip Securities Research | https://www.stocksbnb.com/ 2021-05-06

SGX Stock Analyst Report ACCUMULATE DOWNGRADE BUY 1.170 SAME 1.170