Ascott Residence Trust: Strongest recovery quarter since the pandemic
- 1H22 revenue grew 45% y-o-y; 1H22 DPU of 2.33 Scts 41% of full year DPU forecast
- Key positives: (i) Strongest recovery yet recorded in 2Q22, (ii) Portfolio RevPAU ahead of estimates (iii) Expect RevPAU
- Datapoints to watch: (i) More acquisitions within the longer-stay segment, (ii) Capital distributions for full year, which we have priced in
- Maintain BUY with unchanged TP of S$1.40
- ART 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 ART’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 2.33 Scts, or 120% y-o-y to 1.78 Scts, 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 min. 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 c.10% above 2019 levels.
Robust financial metrics.
- ART 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 c.80% of debt on fixed rates.
RevPAR recovery led by all global markets except Japan and China
- Income from master leases (37% of GP) declined 8% y-o-y (or +7% y-o-y on a same store basis) due to reclassification of Park Hotel Clarke Quay.
- MCMGI (10% of GP) rose 172% y-o-y alongside RevPAR recovery, while management contracts (53% of GP, 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 c.82% of normalised levels in 2Q22, or c.84% for the month of June.
- China and Japan: Markets to lead recovery with further relaxation potential will be China and Japan. Japan's hotel RevPAU is still at c.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 ART’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 with unchanged TP of S$1.40; upside from capital distributions and accretive acquisitions
- We have assumed some form of capital distributions for full year at S$10m. ART distributed S$45m in capital top-ups in the last financial year and still has c.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. ART executed on c.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.
- ART is currently trading at a FY22F / FY23F forward yield of 4.9% / 5.7%, we estimate a 12% CAGR in DPU between FY22-24.
FY Dec | 1H2021 | 2H2021 | 1H2022 | % chg y-o-y | % chg h-o-h |
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Gross revenue | 185 | 209 | 267 | 44.5 | 27.7 |
Property expenses | (103) | (118) | (149) | 44.9 | 26.3 |
Net Property Income | 82.1 | 91.2 | 118 | 44.0 | 29.6 |
Other Operating expenses | 2.83 | (3.0) | (11.0) | - | 273.2 |
Other Non Opg (Exp)/Inc | 0.0 | 0.0 | 0.0 | - | - |
Associates & JV Inc | 0.0 | (28.3) | (0.7) | - | (97.6) |
Net Interest (Exp)/Inc | (25.0) | 0.16 | (30.9) | (23.5) | - |
Exceptional Gain/(Loss) | 156 | 132 | (5.4) | - | - |
Net Income | 200 | 175 | 51.2 | (74.4) | (70.7) |
Tax | (35.1) | (29.4) | (12.4) | (64.8) | (58.0) |
Minority Interest | (1.7) | (0.6) | (1.9) | (15.2) | 231.8 |
Net Income after Tax | 163 | 145 | 36.9 | (77.4) | (74.5) |
Total Return | 163 | 145 | 36.9 | (77.4) | (74.5) |
Non-tax deductible Items | (113) | (103) | 46.4 | - | - |
Net Inc available for Dist. | 63.8 | 73.5 | 76.6 | 20.2 | 4.3 |
Ratio (%) |
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Net Prop Inc Margin | 44.4 | 43.6 | 44.2 |
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Dist. Payout Ratio | 100.0 | 100.0 | 99.9 |
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