Ascott Residence Trust - UOB Kay Hian 2021-04-30: Recovering Domestic Leisure Demand


Ascott Residence Trust - Recovering Domestic Leisure Demand

  • Ascott Residence Trust saw RevPAU increase 10% q-o-q despite a resurgence of COVID-19 cases in certain geographies. Australia saw a recovery in demand for domestic leisure while Singapore also saw RevPAU increase q-o-q with block bookings from government contracts set to continue till 2Q21.
  • While domestic leisure and corporate travel is expected to pick up in subsequent quarters, the return of international travel demand will be a key.
  • Maintain HOLD on Ascott Residence Trust with a target price of S$1.09.

Ascott Residence Trust provided a business update for 1Q21.

  • No financials were released.

RevPAU increased q-o-q to S$55 (+10% q-o-q).

  • While Ascott Residence Trust (SGX:HMN)'s RevPAU was still down 47% y-o-y, there was still a gradual q-o-q improvement despite a resurgence of COVID-19 cases in some countries during the winter and a seasonally softer quarter for corporate travel. Average portfolio occupancy, which improved to 50% in 1Q21 compared with mid-40% in 4Q20, was well supported by block bookings.
  • The group noted strong domestic leisure demand on weekends and holidays for countries such as Australia. Countries with long stays, such as Indonesia, the Philippines and Vietnam, were more resilient with smaller RevPAU declines y-o-y.

Downside protection continues to be in place.

  • Ascott Residence Trust noted that there were no master leases expiring in 2021. Collectively, Ascott Residence Trust’s master leases, management contracts with minimum guaranteed income and longer-stay properties contributed over three quarters of gross profit in 1Q21.
  • About 88% of Ascott Residence Trust’s properties are currently operational. The 10 temporarily closed properties (six of which are on master leases and continue to receive fixed rent) comprise assets in France, Belgium, Spain and South Korea. Temporarily-closed properties are scheduled to reopen progressively in 2Q21 in preparation for the summer holiday season.
  • Distributable income will be supported by a termination fee of S$9.8m (from the divestment and termination of its Citadines assets in China) and one-off realised exchange gain of S$5.6m.

Healthy balance sheet.

  • Gearing at 36.1% (-0.2ppt q-o-q) was unchanged, and Ascott Residence Trust has an S$1.9b debt headroom. Liquidity reserves remain intact with S$1.2b of available funding, comprising S$360m cash, S$830m of credit facilities and net divestment proceeds (from ongoing divestments of Citadines Didot Montparnasse Paris, Citadines City Centre Grenoble and Somerset Xu Hui Shanghai).

Australia picks up, China remains steady.

  • Ascott Residence Trust saw an increase (local currency terms) in Australia RevPAU (+46% q-o-q) as several hotels received block booking by the government along with a pent-up demand in domestic leisure segment, in spite of 3-5 day snap lockdowns in various states.
  • China RevPAU was down slightly (-9% q-o-q) due to localised lockdowns, though demand for corporate long stays have ramped up since Mar 21.
  • Japan saw RevPau decrease (-15% q-o-q) amid the state of emergency.
  • Singapore RevPAU was up in 1Q21 (+14% q-o-q) and will continue to see block bookings from government contracts till 2Q21.
  • UK RevPAU was hard hit in the quarter and declined (- 50% q-o-q) due to the country’s lockdown, while USA RevPAU improved (+16% q-o-q) due to higher leisure demand.
  • Vietnam RevPAU declined marginally (-4% q-o-q), impacted by a resurgence in cases during the Tet holiday in Feb 21.

Pivoting to the new normal.

  • Ascott Residence Trust continues to recycle its capital into higher-yielding investments with a focus on increasing proportion of stable income. These include a recent acquisition of a second rental housing property in Sapporo, Japan for about S$25.5m. The group has also completed the acquisition of a student accommodation property in Paloma West Midtown, the US which has seen strong bookings for the next academic year.

Gradual recovery though some risk remains.

  • Corporate activity has seen a gradual pick-up in Mar 21 and management expects RevPAU q-o-q growth to continue. For Singapore’s Park Hotel Clarke Quay (PHCQ), a letter of demand was issued to master lessee of PHCQ to recover S$5.4m due as at 1 Mar 21. In addition, S$3.5m of rent under the statutory repayment schedule was outstanding as at 31 Mar 21. Security deposits amounting to S$6.8m (approximately six months’ rent) is held in cash.

Outlook: Awaiting a rebound in international travel.

  • According to UN World Tourist Organisation (UNWTO), two possible scenarios for a rebound in international travel could take place, factoring in a major lifting of travel restrictions, and successful vaccination programmes, In the first scenario, a rebound in Jul 21 could see international tourist arrivals increase by 66% in 2021, while a rebound in Sep 21 could see arrivals increase 22% in 2021. Ascott Residence Trust’s geographically diversified presence places it in a good position to ride the different re-opening schedules of countries.


  • We make some housekeeping changes, lowering our Ascott Residence Trust's DPU forecast by 2-8% for 2021-22F, with 2023F DPU of 6.3 cents.



  • Positive newsflow on hotel room rates and occupancy, and tourist arrivals.

Lucas Teng UOB Kay Hian Research | Jonathan KOH CFA UOB Kay Hian | https://research.uobkayhian.com/ 2021-04-30
SGX Stock Analyst Report HOLD MAINTAIN HOLD 1.09 UP 0.910