1Q22 Operational Update: Longer-stay lodging segment holding more than its weight
- Portfolio RevPAR rose 22% y-o-y to S$67 with pent-up demand reflecting more strongly in Mar’22
- Key Positives: (i) First mover advantage in longer-stay assets paying off with cap rate compression of 50-100bps over the past year, (ii) Higher y-o-y RevPAR across the board with the exception of China, (iii) Capital distribution top ups likely this year
- Datapoints to look out for: (i) Green shoots in markets to stem from US, Japan and UK in our view, (ii) Target exposure for longer-stay asset class to increase to 25-30%, (iii) border reopening catalyst to reflect more strongly on RevPAR in 2Q22
- Maintain BUY with TP of S$1.30
Operational Update
| Key Financial Metrics | 1Q22 | 2H21 | %q-o-q | 1Q21 | %y-o-y |
| Gearing | 37.8% | 37.1% | 0.7 ppt | 36.1% | 1.7 ppt |
| Average cost of debt | 1.6% | 1.6% | 0 ppt | 1.70% | -0.1 ppt |
| ICR | 3.5 | 3.7 | (0.2) | 2.1 | 1.4 |
| Debt hedging rate | 70% | 74% | -5% | 78% | -10% |
| RevPAR | 1Q22 | 2H21 | %q-o-q | 1Q21 | %y-o-y |
| Portfolio RevPAR (S$) | 67 | 79 | -15% | 55 | 22% |
| Australia RevPAR (AUD) | 71 | 64 | 11% | 67 | 6% |
| China (RMB) | 221 | 265 | -17% | 280 | -21% |
| Japan (JPY) | 2699 | 4117 | -34% | 1976 | 37% |
| Singapore (S$) | 65* | 65 | flat | 61 | 7% |
| United Kingdom (GBP) | 70 | 76 | -8% | 14 | 400% |
| United States (USD) | 76 | 117 | -35% | 47 | 62% |
| Vietnam (VND) | 712 | 640 | 11% | 752 | -5% |
Key Observations
Longer-stay asset segment continue to hold more than their weight, Strategic focus on expanding this lodging segment on track with target exposure increased to 25-30%, Green shoots for hotel and serviced residences assets to stem from US, Japan and UK in our view
- Portfolio RevPAR rose 22% y-o-y to S$67 even with Omicron impact felt towards the earlier part of the quarter.
- Pent-up demand was strong in March 2022, particularly in UK, US, Japan and Australia.
- Green shoots we see for ART’s portfolio in the coming quarters will include
- US in the coming months of spring break
- Japan as leisure demand returns with ‘Go To Travel’ reintroduced and potential international border reopening, and
- UK which is showing sustained demand for business and corporate bookings
- Several master leases will be due for renewal this year, with Citadines Les Halles renewed ahead of expiry on fixed rents on par to pre-COVID terms. Ascott Orchard’s master lease is currently also underway.
- 3 properties came off government contracts in the quarter with 2 in Singapore and 1 in Australia.
- Lyf one-north saw a quick ramp up in occupancies to 85% in the matter of months post soft opening in Nov’21, in line with a tightening market for serviced residences asset offering in Singapore that we have been seeing.
- Longer stay segment contributed c.28% of gross profit for the quarter on a current 17% AUM exposure to the segment.
- Segment occupancy remains resilient with high average occupancy of above 95% and rental growth of c.5%.
- ART will be increasing target exposure in the long stay segment from 15-20% to 25-30%.
- Institutional interest in the longer-stay lodging segment saw the further compression of cap rates for purpose built student accommodation and multi-family assets in the US by 50 – 100bps since their initial acquisition cap at c.5% last year.
- Recent news of Blackstone’s privatisation of American Campus Communities (largest student accommodation REIT in the US) at an exit cap of about low 4%.
- Development rooms in the pipeline include PBSA in South Carolina (678 freehold rooms) and Somerset Liang Court (192 units) to come onstream in 2Q23 and 2H25 respectively.
- Gearing remains healthy at 37.8%, and low cost of debt of 1.6%. Average cost of debt will potentially see a 10-15bps increase in upcoming refinancing exercise. An approximate 10bps increase in interest rate will reflect as a 0.5% decline in DPUs.
- Approximately 48% of assets in foreign currency are hedged and 70% of debt on fixed rates.
- Similar to the last two years, management will also look to share partial capital proceeds to shareholders this financial year.
We currently have a BUY call with TP of S$1.30.