1Q22: Reopening Resumes And Business Travellers Return In March
Portfolio RevPAU increased 22% yoy to S$67 in 1Q22. ART benefitted from a strong
pick-up in Mar 22 in countries with large domestic markets, such as the US, the UK,
Japan and Australia, due to pent-up demand. ART plans to raise the asset allocation
target in longer-stay assets, such as student accommodation and rental housing, by
10ppt to 25-30% of portfolio value in the medium term. Distribution yield is expected to
improve from 4.4% for 2022 to 5.4% for 2023. Maintain BUY. Target price: S$1.32.
RESULTS
• Ascott Residence Trust (ART SP) provided a business update for 1Q22.
• Recovery and reopening resumed in March as new cases of Omicron variant eased.
Portfolio RevPAU increased 22% yoy to S$67 in 1Q22, powered by higher occupancy and
recovery in average daily rate. Jan-Feb 22 was affected by restrictions imposed to control
the spread of the Omicron variant. ART benefitted from strong pick-up in Mar 22 in countries
with large domestic markets, such as the US, the UK, Japan and Australia, due to pent-up
demand. International corporate and leisure bookings are recovering as more countries
reopen their borders to vaccinated travellers.
• US: Benefitting from increase in international bookings. RevPAU recovered 31% yoy to
US$76 in 1Q22. Performance of Element New York Times Square West and voco Times
Square South improved yoy. Sheraton Tribeca New York, which was previously block
booked for healthcare workers, saw softer performance. Recovery started in Feb 22 and is
expected to be sustained into 2Q22 due to an increase in international booking. voco Times
Square South, which is within walking distance from Jacob K Javits Convention Center,
benefits from convention-related demand.
• UK: Bright prospects for sustained recovery. RevPAU increased 400% yoy to £70 in
1Q22 (lockdown in 1Q21). The UK no longer requires COVID-19 tests and quarantine for
vaccinated and unvaccinated travellers since Feb 22. Long stays and student groups
provide a strong base. The uptick in demand from business travel and corporate groups
since Feb 22 led to higher rates. Bookings from international travellers have grown to 40% of
its business in 1Q22. The recovery extends into 2Q22 due to pick-up in domestic travel and
the slew of public holidays (Easter, Bank Holiday and Jubilee weekend).
• Australia: Companies restarted business travel. RevPAU increased 6% yoy to A$71 in
1Q22. Revenue was affected as some hotels transitioned from block bookings to serving
public guests. Pent-up demand led to a surge in bookings in Mar-Apr 22. Demand from the
corporate segment spiked in Mar 22 as companies restarted business travel. Travel
confidence has improved and events, such as F1 Grand Prix, are expected to provide further
uplift in 2Q22.
• Japan: Cautious and gradual reopening in progress. RevPAU increased 37% yoy to
¥2,699 in 1Q22. There was an uptick in leisure demand since quasi-emergency curbs were
lifted in Mar 22. Japan also reopened for business travellers and foreign students in Mar 22.
The Go To domestic travel campaign is expected to be reintroduced in coming months,
further boosting domestic tourism.
• Pivot towards longer-stay properties. Occupancy for its student accommodation
properties was close to 100%. Occupancy for rental housing properties was above 95%.
Longer-stay properties, such as student accommodation & rental housing, accounted for
28% of gross profit in 1Q22 and 17% of AUM as of Mar 22.
• Contributions from development projects. ART’s maiden development project, the 324-
unit coliving property lyf one-north, soft opened in Nov 21 and has achieved occupancy
above 85%. It is in close proximity to one-north MRT station. Bookings were mainly from
companies and educational institutions located in the vicinity.
• Financial capacity to support future acquisitions. Aggregate leverage is healthy at
37.8% as of Mar 22 (bank loans: 73% and medium-term notes 27%), which provides debt
headroom of S$1.8b. Its cost of debt is low at 1.6%. 70% of its total borrowings are on fixed
interest rates. The proportion is expected to increase to 78% after the refinancing of shortterm floating rate loan taken to finance the recent acquisition of student accommodation
properties.
STOCK IMPACT
• Setting sights on a higher goal. Management plans to raise the asset allocation target in
longer-stay assets by 10ppt from 15-20% to 25-30% in the medium term.
• Value creation through asset recycling. ART divested six properties at an average exit
yield of 2% and total proceeds of S$580m. The capital freed up was reinvested in 11 yieldaccretive rental housing and student accommodation properties for total consideration of
S$780m and an average EBITDA yield of 5%. ART’s longer-stay assets currently account
for 17% of AUM.
EARNINGS REVISION/RISK
• We trim our 2022 DPU forecasts by 6% due to weakness in Jan-Feb 22. We raised our 2023
DPU forecasts by 2% due to rapid recovery and reopening since Mar 22.
VALUATION/RECOMMENDATION
• Maintain BUY. Our target price of S$1.32 is based on DDM (cost of equity: 6.25% (previous
6.5%), terminal growth: 1.8%).
SHARE PRICE CATALYST
• Yield-accretive acquisitions for student accommodation and rental housing.
• Maiden development project lyf one-north, which soft opened in Nov 21.
• Recovery of the hospitality industry in Europe, Americas, Japan and Singapore, followed by
other countries in the Asia Pacific region.