Ascott Residence Trust (ART SP)
Current shareprice: SGD1.35
Target price: SGD1.39
Potential yield: +3.5%
We maintain a BUY action on this counter. Let’s take a look at the insights of the REIT company.
Ascott Residence Trust (Ascott Reit) is a Singapore-based serviced residence real estate investment trust (REIT). The Company is engaged in the business of investing in serviced residences. It is engaged in investing primarily in real estate and real estate related assets, which are income-producing and used as serviced residences; rental housing properties, and other hospitality assets. Ascott Reit’s international portfolio comprises approximately 90 properties with approximately 11,300 units. Its serviced residences are operated under the Ascott, Citadines and Somerset brands, and are located in cities, such as Barcelona, Berlin, Brussels, Guangzhou, Hanoi, Ho Chi Minh City, Jakarta, Kuala Lumpur, London, Manila, Melbourne, Munich, New York, Paris, Perth, Shanghai, Singapore and Tokyo. The Company is managed by Ascott Residence Trust Management Limited (ARTML or the Manager).
Essentials:
Ascott Residence Trust (ART) reported a DPU of 1.91 S cents, bringing 9M19 DPU to 5.34 S cents. The results were positive along with the 9M19 DPU accounting for 70% of our foresight.
European markets:
Gross profit increased 1.4% yoy to S$65m in 3Q19. For key countries, gross profit increased 1.21% for the UK and 7.4% for Vietnam in Singapore dollar terms. Smaller markets, such as Belgium and Spain, also contributed. Gross profit for Singapore declined 18% due to the divestment of Ascott Raffles Place Singapore.
Overall RevPAU:
Decreased slightly to S$155 due to weaker exchange rates. The UK (+9%), Vietnam (+9%), Singapore (+2%), Japan (+2%) are among the best performing markets in terms of RevPAU growth in local currency terms. The UK portfolio is expected to maintain its momentum due to higher corporate and leisure demand, and events such as the UEFA Euro 2020 should provide some uplift to hotels in London. The weak pound will also boost inbound leisure travel to the UK. Vietnam registered an increase in visitor arrivals of 26.9% in 9M19. Hanoi continues to be a top destination for investments from multi-national companies, which augurs well for demand for serviced residences. Singapore benefits from government’s tourism initiatives and limited supply of new hotel rooms. Japan saw strong leisure demand with an uplift from the Rugby World Cup held in Sep 19 and will benefit from Tokyo Olympics and Paralympics in 2020.
Global presence provides diversification:
About 40% of 3Q19 gross profit came from stable income from properties on master leases and management contracts with minimum guaranteed incomes. The remaining gross profit of S$38m was derived from serviced residences on management contracts.
ART secured resounding approval from unitholders for the proposed combination of ART and Ascendas Hospitality Trust (AHT), which is on track for completion by 4Q20. The merger of ART and AHT will cement the combined entity’s position as the largest hospitality trust in Asia Pacific with total assets of S$7.6b. Post-combination, ART will have greater access to growth opportunities, increased capacity to undertake more development and conversion projects, and greater financial flexibility to finance growth. This merger also facilitates ART’s inclusion into the FTSE EPRA NAREIT Developed Index. The combined entity is expected to begin trading on the SGX on 2 Jan 20.
Room for inorganic growth:
ART has debt headroom of more than S$1b for yield-accretive investments. It is on the lookout for quality assets in Europe and the US. lyf one-north, its maiden development project and co-living property, is on track to open in 2021.
Reuters:
https://www.reuters.com/companies/ASRT.SI
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*** This report is neither an offer nor the solicitation of an offer to sell or purchase any investment. Comments are based on information obtained from sources believed to be reliable but Fides Assets makes no representation and accepts no responsibility or liability as to its completeness or accuracy.
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