Ascott Residence Trust - DBS Research 2022-08-05: Strongest Recovery Since Pandemic; RevPAU Almost Doubled Y-o-y

Ascott Residence Trust - Strongest Recovery Since Pandemic; RevPAU Almost Doubled Y-o-y

ASCOTT RESIDENCE TRUST (SGX:HMN) | SGinvestors.ioASCOTT RESIDENCE TRUST (SGX:HMN)
  • Ascott Residence Trust (SGX:HMN) reported a 1H22 revenue of S$267.4m (+45% y-o-y). Higher revenue was due to acquisition contributions primarily within the longer-stay lodging segment, as well as the Lyf One-North which launched in Jan’22. Apart from inorganic growth, RevPAU rose 60% y-o-y in 1H22 to S$96.
  • The recovery is tilted towards 2Q22, where RevPAU almost doubled y-o-y (+91% y-o-y) to S$120 and was Ascott Residence Trust’s strongest recovery quarter since the pandemic.
  • Gross profit (GP) rose 44% y-o-y to S$118.2 for the half year. 1H22 DPU rose 14% y-o-y to S$0.0233, or 120% y-o-y to S$0.0178, excluding one-off items such as distribution top up (amounting to S$20m in 1H21).
  • Income sources continued to be well-diversified, with stable income sources – comprised of master lease and management contract with a minimum guaranteed income (MCMGI) and longer-stay assets – contributed to 68% of 1H22 gross profits.
  • Utilities hike temporarily hedged on fixed rates in three markets, while utility expenses are passed on to tenants in long stay lodging assets. Staff costs higher at ~10% above 2019 levels.

Robust financial metrics.

  • Ascott Residence Trust remains well-equipped on the capital management front with stable gearing of 37.5%, a debt headroom of S$1.8bn (to target gearing of 50%).
  • Average cost of debt stood at 1.7% with a weighted average debt expiry of 3.1 years (WADE of 4.6 years for floating loans) and ~80% of debt on fixed rates.

RevPAR recovery led by all global markets except Japan and China

  • Income from master leases (37% of gross profit) declined 8% y-o-y (or +7% y-o-y on a same store basis) due to reclassification of Park Hotel Clarke Quay. Management contract with a minimum guaranteed income (MCMGI) (10% of gross profit) rose 172% y-o-y alongside RevPAR recovery, while management contracts (53% of gross profit, including classification of long-stay segment) rose 57% y-o-y with higher gross profits across all countries except China.
  • RevPAR to continue to sustain recovery to close the gap against pre-COVID, portfolio RevPAU stands at ~82% of normalised levels in 2Q22, or ~84% for the month of June.
  • Markets to lead recovery with further relaxation potential will be China and Japan. Japan's hotel RevPAU is still at ~32% of normalised basis with a long headroom to run.
  • Markets that have done well to see RevPAU matching pre-COVID levels include France and the UK. The US is also seeing a sharp increase in occupancies back to 80% levels for their New York hotels from strong corporate demand.

Acquisition appetite remains strong for longer-stay lodging assets with continued interest in US PBSAs.

  • Interest for acquisitions continues to be in longer-stay asset class, current exposure at 17% with medium term target exposure of 25-30%. US PBSAs continue to rank high on ART's acquisition radar with relatively attractive yield spread and stable operating metrices.
  • Longer-stay segment continue to deliver both stability and rental growth. Occupancy for Ascott Residence Trust’s longer-stay assets has been maintained at above 95%, with PBSA (purpose-built student accommodation) segment expected to deliver 8% y-o-y rental growth in the coming academic year.

Maintain BUY recommendation on Ascott Residence Trust; upside from capital distributions and accretive acquisitions

  • We have assumed some form of capital distributions for full year at S$10m. Ascott Residence Trust distributed S$45m in capital top-ups in the last financial year and still has ~S$300m in capital gain reserves from their divestments since 2018.
  • Quantum of capital distributions at year end will likely account for both acquisition funding needs and full year portfolio and DPU performance.
  • Accretive acquisitions will come as further upside to our full year FY22 estimates, which we have not modelled into forecast numbers. Ascott Residence Trust executed on ~S$850m in acquisitions within the longer-stay lodging asset class in 2021. We continue to expect delivery of acquisitions within this space in 2H22, which will serve as upside to our numbers.
  • Ascott Residence Trust's share price is currently trading at a FY22F / FY23F forward yield of 4.9% / 5.7%, we estimate a 12% CAGR in DPU between FY22-FY24.




Above is the excerpt from report by DBS Group Research.
Clients of DBS may access the full report in PDF @ https://www.dbs.com/insightsdirect/.




Geraldine WONG DBS Group Research | Derek TAN DBS Research | https://www.dbs.com/insightsdirect/ 2022-08-05



Previous report by DBS:
2022-05-05 Ascott Residence Trust - Longer-Stay Lodging Segment Holding More Than Its Weight.

Price targets by other brokers at Ascott Residence Trust Target Prices.
Listing of research reports at Ascott Residence Trust Analyst Reports.

Relevant links:
Ascott Residence Trust Share Price History,
Ascott Residence Trust Announcements,
Ascott Residence Trust Dividends & Corporate Actions,
Ascott Residence Trust News Articles















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