U.S. stocks fell 0.25%-0.46% over night as Morgan Stanley and Citigroup advised clients to take profit in US equities.
Idea of the Day
Ascott Residence Trust / ART ($1.04, halt) will acquire a freehold 1,005- bed student accommodation asset in Texas, USA for US$70.0 million (S$93.8 million), its third student accommodation investment within a span of seven months. One of the newest student accommodation in the area, Wildwood Lubbock is a cottage-style property which serves over 40,000 undergraduate and graduate students from Texas Tech University (TTU). The accretive acquisition will increase ART’s pro forma FY 2020 Distribution per Stapled Security by approximately 1.5%. The EBITDA yield is expected to be 5.1%. The transaction will be completed on 21 September 2021.
Ms Beh Siew Kim, Chief Executive Officer of ART said: “The acquisition of our third student accommoda on asset is in line with ART’s strategy to acquire assets with longer length of stay and diversify our por olio from traditional hospitality assets, further increasing ART’s resilience and stable income. Leases are typically for a year and Wildwood Lubbock will start contributing income immediately. Despite COVID-19, Wildwood Lubbock is 100% leased for the 2021 Academic Year and there is minimal upcoming private student accommodation supply.”
Ms Beh added, “With Wildwood Lubbock, ART will expand its longer-stay por olio to about 11%, keeping us on track to have student accommodation and rental housing properties constitute about 15-20% of our total property
value in the medium term. Since the expansion of ART’s investment mandate to include student accommodation assets in January 2021, ART has committed to invest a total of about S$379 million on three prime student accommodation assets in USA and three rental housing properties in Sapporo, Japan at an average EBITDA yield of about 5%. Following this acquisition, ART’s gearing would remain unchanged at 35.9%. ART continues to be in a strong financial position to seek accretive investments in more longer-stay lodging assets and create greater value for our Stapled Security holders.”
Opened in 2017, Wildwood Lubbock is close to TTU, one of the top public research universities with elite college athletics status. TTU’s student population has grown consistently at a compound annual growth rate of 2.5%
over the past decade. The overall enrollment for the 2020 Academic Year also increased by 4.0 % year-on-year despite COVID-19. TTU is the sixth largest university in Texas by student population with local students comprising 98%
of its total student population. TTU’s athletics programme also competes in the Big 12 Conference, one of the ‘Power 5’ athletics conferences in the National Collegiate Athletic Association. Wildwood Lubbock has 1,005 beds
across 294 units, comprising two- to four-bedroom apartments and each room comes with ensuite bathrooms.
The student accommodation has top-of-the-market on-site amenities such as the largest resort-style pool in Lubbock with jetted hot tubs, a swim-up bar, outdoor cabanas with gas grills and firepits. The student accommodation also
has a gym, study rooms, a clubhouse with a game-day theatre room, a pet park as well as basketball and volleyball courts. With most students driving to campus, Wildwood Lubbock offers close to 1,100 parking lots.
Students can also access the heart of the TTU campus via a shuttle bus ride. Wildwood Lubbock will be managed by an unrelated third-party operator. Prior to the acquisition of Wildwood Lubbock, ART acquired the freehold
Paloma West Midtown in Atlanta, Georgia, USA in February 2021. The student accommodation was acquired for US$95 million (S$126.3 million) at an EBITDA yield of about 5%.
Separately, ART announced the successful closure of its private placement which will see them raise S$150 million via the issue of 152.6 million new stapled securities at 98.3 cents each (5.5% discount). The private placement was 2x covered.
At $1.04, ART is capitalized at $3.24 billion and trades at a dividend yield of 4%. 2021 consensus PE is 30x, price to book is 0.9x. With limited capital upside to consensus target price of $1.10 and including its 4% dividend yield, we
maintain our HOLD recommendation on ART.
Del Monte (S$0.365, up 1 cent) announced that it had achieved another strong quarter of profitability with an EBITDA of US$75.0mln, a 77% increase from US$42.4mln. Net profit reached US$18.3mln, reversing the US$3.2mln loss in the prior year’s same quarter. The Group significantly improved its margins by 600 basis points to 28.9% from better sales of higher-margin branded products in the USA and lower costs.
The Group generated sales of US$462.1mln, up 12% versus prior year period on higher sales in the USA and international markets. The Group’s US subsidiary, Del Monte Foods Inc. (DMFI), generated sales of US$298.1mln or about 65% of Group sales. DMFI’s first quarter sales increased by 11% on strong branded retail and foodservice which grew by a combined 17%, while sales of low-margin private label were reduced as planned.
Improvement in supply and distribution gains led to higher volume across major categories primarily canned vegetables and fruits. DMFI’s innovation pipeline continued to offer exciting products to consumers. In the Snacking area, it recently launched Del Monte Fruit Infusions and Joyba Bubble Tea. Fruit Infusions are energizing fruit cup snacks infused with antioxidants and other healthy functional ingredients.
Joyba Bubble Tea is a new brand targeting Millennials and Gen Z with a line of boba shop-inspired beverages made with real brewed tea infused with vibrant fruit flavors and “popping” boba. In the Meals area, DMFI continued its Frozen Foods expansion with the launch of Del Monte Veggieful Riced Veggies, a line of flavorful vegetables
replacing the higher calorie and carbohydrate regular rice. New products launched in the past three years contributed 4.8% to DMFI’s total sales in the fi rst quarter.
The Group’s second largest and most profitable subsidiary, Del Monte PhiIippines, Inc. (DMPI), achieved higher sales of US$176.0mln, up 20% versus the prior year period led by international market sales, boosting net profit by 37% to US$25.6mln and EBITDA by 19% to US$39.9mln. DMPI benefited from the reduced corporate tax rate of 25% with the passage of the Corporate Recovery and Tax Incen ves for Enterprises Act (CREATE) in March 2021.
More than half of DMPI’s sales are in the Philippines, with the balance in the interna onal market. DMPI’s sales in the interna onal market rose 40% to US$67.8mln on robust sales of Packaged Fruit and Beverages including premium packaged pineapple (Del Monte Deluxe Gold) in the USA, and S&W packaged products in Asia. The Premium Fresh Fruit segment, mostly branded S&W MD2 pineapple, continued its recovery from the first quarter last year which was impacted by the pandemic in China.
It achieved strong sales in the current quarter on the back of expanded distribution coverage with 747 new stores for the company’s top three distributors in China. 3,000 Goodme and 1,000 ChaBaiDao fruit tea shops also used S&W pineapple in their offerings. S&W fresh cut pineapple was also the best-selling among fresh cut pineapple products on South Korea’s largest e-commerce platform, Coupang.
DMFI in the US expanded its gross margin by 820 basis points to 25.9% from 17.7% on favorable sales mix from improved sales of higher-margin retail branded products and lower costs. DMFI increased its EBITDA significantly to US$37.5mln from US$10.4mln and generated a net profit of US$4.8mln, reversing the loss of US$14.3mln in the prior year quarter, sustaining its path to higher profitability coming off its FY2021 turnaround.
The DMPL Group gross margin significantly expanded to 28.9% from 22.8% due to the aforementioned factors. The Group saw a marked improvement in its net debt/EBITDA to 3.8x from 5.4x last year and reduced its gearing to 2.06x from 2.19x equity in the prior year. DMPL is well-positioned to build on the momentum achieved in FY2021 and expects to offset the impact of commodity and transportation headwinds.
Barring unforeseen circumstances, the Group expects to generate higher net profit in FY2022. During the COVID-19 pandemic, the Group has partnered with over 400 non-government organizations and local government units to provide food to marginalized communities and frontliners in around 60 medical facilities. At $0.365, market cap of Del Monte is $1177mln, trailing P/E is 8.1x and its dividend yield is 4.5%.