Ascott Residence Trust - Phillip Securities 2021-11-03: Recovery Gaining Momentum


Ascott Residence Trust - Recovery Gaining Momentum

  • No financial data provided in this operational update. To recap, Ascott Residence Trust (SGX:HMN)'s 1H21 DPU (+95% y-o-y) of 2.05 cents was in line at 47% of our estimate.
  • Gradual recovery evident from rising RevPAU, driven by higher ADRs in 3Q21.
  • S$491mil invested in extended stay assets year-to-November will replaced Ascott Residence Trust’s divested income, hastening DPU recovery. High vaccination rates in key markets and governments’ commitment to reopening of international borders should support further recovery.
  • Maintain ACCUMULATE on Ascott Residence Trust with DDM-based (COE 8.5%) target price of S$1.19.
  • FY21 recovery has been more laboured that we initially anticipated. As such, we tweak our FY21e-25e DPU estimates between -5.8%-0.3%, with no impact to our DDM-derived target price of S$1.19. We have incorporated a more gradual pace of recovery as well as incorporating the two PBSA acquisitions, Wildwood Lubbock and Seven07.

The Positives

Fifth quarter of RevPAU recovery.

  • Ascott Residence Trust's 3Q21 RevPAU grew 8% q-o-q and 49% y-o-y, driven by higher ADRs. Portfolio occupancy was unchanged q-o-q at ~55%. Stronger q-o-q RevPAU recovery in 3Q21 from Japan (+108%), France (3Q21 occupancy: 80%), UK (+45%) and US (+50%).
    • Two SRs in Tokyo secured group booking during the Tokyo Olympics.
    • France and UK benefitted from domestic and European leisure demand during the summer holidays.
    • US saw strong domestic leisure demand, particularly on weekends, as well as an uptick of corporate group booking and transient travellers as the US economy reopened.
    • China also registered a slight 3% q-o-q growth in RevPAU on a same-store basis due to returning corporate long stay demand.

Acquisitions to rebalance portfolio and replace divested income.

  • Ascott Residence Trust has invested S$491mil year-to-November at average EBITDA yield of 5%, replacing S$13mil in lost distributable income due to divestments. Year-to-date, Ascott Residence Trust has picked up three rental housing assets and four purpose build student accommodation (PBSA) assets in the US, one of which is still under development.
  • Apart from replacing divested income, these long stay assets provide income visibility, providing a stable base of earning for Ascott Residence Trust.

The Negative

Vietnam and Australia’s performance marred by lockdowns in 3Q21.

  • Australia’s RevPAU fell 28% q-o-q due to lockdowns and interstate travel restrictions - New South Wales and Victoria were in lockdown for the most part of 3Q21. Thankfully, three out of 14 of Ascott Residence Trust’s Australian properties were block booked by the government for isolation business.
  • Similarly in Vietnam, lockdown measures in Ho Chin Minh City and Hanoi resulted in a 19% q-o-q decline in RevPAU. Both Australia and Vietnam have begun easing restrictions since late September.


High vaccination rates in Ascott Residence Trust's eight key markets - France, UK, US, Australia, China, Japan, Singapore and Vietnam.

  • As at end-Oct21, with exception of Vietnam, these countries have fully vaccinated between 68%-84% of its population. While fully vaccinated population in Vietnam is relatively low at 23%, vaccination rates in cities where Ascott Residence Trust has presence in such as Ho Chin Minh City and Hanoi have reached 60% and 80% respectively.
  • UK, France and US have recovered ahead of the rest of Ascott Residence Trust’s territories, owing to domestic leisure demand. These countries are also one of the first to reopen leisure travel lanes with selected countries. Following the lifting of lockdown in Brisbane in Sep21, and Melbourne and Sydney and October in Oct21, Australia has lifted its international travel ban for citizens and will be added to Singapore’s VTL on 8 November 2021.
  • Three properties in Australia and two in Singapore have been block booked by the government until 1Q22. With international travel returning, Ascott Residence Trust will periodically review whether government business remains relevant or if the asset should be converted to take on leisure demand.

Picking up two more PBSAs in the US.

  • Wildwood Lubbock was acquired on 21 September 2021 for S$94.8mil, at an entry yield of 5.1%. Located in Texas, the PBSA serves students attending Texas Tech University. It is fully booked for AY2021 (Sep21 to Aug22). Bed rates have increased 5% from the preceding academic year, AY2020.
  • Acquisition of Ascott Residence Trust’s fourth PBSA asset, Seven07, is estimated to be completed in mid-November 2021. The S$112.4mil asset is located in Illinois and serves students attending the University of Illinois Urbana- Champaign. Entry yield of 4.5% is expected to increase to 4.8% on the back of 8% y-o-y growth in bed rates. Seven07 is fully leased for AY2021 and has secured bookings for 50% of beds for AY2022 in just two months after opening AY2022 for booking. Post-acquisition, this segment will account for 11% of AUM, up from 5% as at Dec20, bringing Ascott Residence Trust closer to its’ 15-20% medium-term target for the extended stay segment.
  • These extended stay assets have maintained occupancies above 95% in 2020 and have long average lengths of stay of one year, providing Ascott Residence Trust with stable income.

Maintain ACCUMULATE and DDM-based target price of S$1.19

Natalie Ong Phillip Securities Research | https://www.stocksbnb.com/ 2021-11-03