Ascott Residence Trust - Maybank Research 2022-08-01: Recovery & Growth

ASCOTT RESIDENCE TRUST (SGX:HMN)

Ascott Residence Trust - Recovery & Growth

Ascott Residence Trust (SGX:HMN)’s headline revenue/gross profit was at +45% y-o-y/+44% y-o-y in 1H22, vs same-store at +32% y-o-y/+28% y-o-y, driven by broad-based RevPAU recovery which accelerated in 2Q22. Excluding one-offs, adjusted DPS jumped 120% y-o-y, vs a reported +14% y-o-y.

While its properties in France and the UK have outperformed pre-pandemic levels, management sees room for stronger RevPAU recoveries in Japan and China in 2H22. We raise our forecasts for Ascott Residence Trust by 7-8% with a stronger RevPAU growth assumption.

Ascott Residence Trust's 2Q22 RevPAU rose 91% y-o-y/85% q-o-q to S$124, from higher occupancy of ~70% (from ~50% in 1Q22) and ADR (+c.40% q-o-q), to reach ~82% of 2Q19 RevPAU. This was underpinned by improvements across all markets except for China, with growth led by the US (+257% y-o-y), the UK (+227% y-o-y), Singapore (+132% y-o-y) and Australia (+58% y-o-y).
Demand from corporate and international travel segments has climbed, and with forward bookings strong, we see RevPAU gaining traction in the coming quarters. We now pencil in 40% RevPAU growth (vs +25% y-o-y), with a stronger h-o-h in 2H22.

Contribution from stable income sources rose to 68% of 1H22 gross profit (vs 64% in 2H21) on the back of acquisitions. Rental housing and student accommodation assets added from FY21 saw occupancies at > 95%, with three of the seven US properties fully-occupied. Pre-leasing is strong at ~95% for the 2023 academic year, with rents set to rise at a faster +8% y-o-y (from +5% y-o-y in 1Q22).
The segment accounted for 17% of Ascott Residence Trust's 1H22 AUM (from 16% in FY21), vs its medium-term 25-30% target, with this set to rise.

Ascott Residence Trust's gearing was stable at 37.5% (vs 37.8% as at end-Mar 2022), and fixed-rate debt remains high at 79% (vs 78%), while borrowing cost rose to 1.7% (vs 1.6%); we expect a 50bps increase in its base rate could lower DPU by < 2%.
See
We see a S$1.8b debt headroom (50% limit) supporting acquisitions, with the new CEO looking to leverage on Ascott Residence Trust’s strong financial fundamentals to drive growth on its more resilient, long-stay AUM.
Our DDM-based target price for Ascott Residence Trust rises to S$1.40 (from S$1.30). We like Ascott Residence Trust’s diversified portfolio, concentrated longer-stay assets, strong balance sheet, and ~S$300m in residual divestment gains to support capital distributions amid an uneven DPU recovery. BUY.

Chua Su Tye Maybank Research | https://www.maybank-ke.com.sg/ 2022-08-01

SGX Stock Analyst Report BUY MAINTAIN BUY 1.400 UP 1.30