Recovery gaining traction
? 1Q22 RevPAU increased 22% yoy to S$67.
? Gearing of 37.8% provides potential debt headroom of S$1.8bn to explore
inorganic growth opportunities.
? Reiterate Add rating with a higher TP of S$1.24.
1Q22 business update highlights
Ascott Residence Trust (ART) reported a 22% yoy increase in 1Q22 portfolio RevPAU to
S$67, driven by higher ADR and occupancy rates. Revenue and gross profit increased yoy
due to contributions from newly acquired properties and stronger operating performance
of the portfolio. In terms of geography, Australia, France, Japan, Singapore, UK and USA
delivered higher RevPAU yoy, while Vietnam and China’s performance was impacted by
Covid-19 restrictions for most of 1Q22 (Vietnam) and tightening or restrictions and
lockdowns in some provinces with outbreaks in China. Meanwhile, master lease for
Citadines Les Halles Paris was renewed ahead of its expiry in 2024 on fixed rent terms at
pre-Covid levels and the master lease for Citadines Kurfurstendamm Berlin, expiring in
2022F, was also renewed on fixed rent terms. Negotiations are underway for the renewal
of Ascott Orchard Singapore’s master lease, expiring in 2022F.
Robust balance sheet with gearing at 37.8%
ART’s gearing as at 1Q22 stood at 37.8%, providing the trust with a debt headroom of
S$1.8bn, assuming a gearing of 50%. An estimated 70% of ART’s debt is hedged to fixed
rates. In terms of sensitivity, a 25bp change in average funding cost could impact its DPU
by 0.5%. In terms of strategy, ART continues to look for opportunistic divestments to unlock
value and recycle capital into higher yielding hospitality and longer stay properties, and
development projects and asset rejuvenation to enhance returns. ART acquired three
rental housing and one student accommodation properties in Osaka, and one rental
housing property in Fukuoka, on a turnkey basis for S$125m. The purchase is expected to
deliver a NOI yield of 4%. The purchase of the student accommodation was completed in
Mar 22 and the remaining four properties expected to complete between 4Q22 and 2Q23.
Reiterate an Add rating
We raise our FY22-24F DPU by 0.4-0.9% post update. Accordingly, our DDM-based TP is
raised to S$1.24. With border restrictions easing, we believe global travel is likely to recover
in the coming months. This should continue to provide more tailwinds to demand for ART’s
properties. While 28% of its 1Q22 gross profit was exposed to the more stable rental
housing and student accommodation properties, its serviced residences and hotels
properties should enable ART to benefit from the recovery of the global hospitality industry.
Upside/downside risks include faster/slower recovery from Covid-19.