Ascott Residence Trust Review @ 3 August 2021

 Basic Profile & Key Statistics

Ascott Residence Trust (ART) is a stapled group that invests in serviced residences, hotels, rental housing properties and currently owns 88 properties across 15 countries.

Performance Highlight

1H Revenue gross profit and REVPAU have decreased YoY due to divestment and COVID has a lesser impact on 1Q 2020. Distributable income, on the other hand, has increased YoY due to by distribution from divestment gain of S$20 million, one-off termination fee income received and realized exchange gain.

In 1H 2021, ART has divested 3 properties at above book value. The proceeds are re-deploy to acquire student accommodation in Atlanta and rental housing in Japan. Besides this, ART also jointly invest and develop student accommodation in South Carolina, the target construction completion is at 2Q 2023.

The redevelopment of Somerset Liang Court and development of lyf one-north are ongoing, which are expected to be completed by 2H 2025 and 4Q 2021 respectively.

Refurbishment of Hotel Central Times Square in New York is ongoing and expected to launch in 4Q 2021. It would be rebrand to voco Time Square South.

Related Parties Shareholding

• REIT sponsor's shareholding is high at 33.52%
• REIT manager's shareholding is high at 7.1%
• Directors of REIT manager's shareholding is low at 0.04%

Lease Profile

• Income in SGD/Major Currencies is slightly low at 77.2%.
• WALE is long at 6.5 years
• Highest lease expiry within 5 years is low at 19% which falls in 2022 
• Weighted Average Land Lease Expiry is long at 81.49 years

Debt Profile

• Gearing ratio is moderate at 35.9%
• Cost of debt is low at 1.6%
• Fixed rate debt % is moderate at 80%
• Unsecured debt % is low at 61.2%
• WADM is long at 3.2 years
• Highest debt maturity within 5 years is moderate  at 31% which falls in 2022
• Interest coverage ratio is low at 2.3 times
• Perpetual securities over debts is high at 15.8%

Diversification Profile

• Top geographical contribution is low 9.4% 
• Top property contribution is low at 4.1% 
• Top 5 properties contribution is low at 18% 
• Top tenant contribution is high at 12.8% 
• Top 10 tenants contribution is low at 28.1%
• Top 3 countries contribution is from Australia, Japan and China which contribute close to 1/2 of GRI. 

Key Financial Metrics

• Property yield is low at 2.2% 
• Management fees over distribution is high at 18.9% in which unitholders receive S$ 5.29 for every dollar paid 
• Distribution on capital is low at 2%
• Distribution margin is  low at 18.9%
• 47.8% of the past 12 months DPU is from partial proceeds from divestment.

Trends

• Slight Downtrend - NAV per Unit
• Downtrend - DPU, Interest Coverage Ratio, Property Yield, Distribution on Capital, Distribution Margin

Relative Valuation

• P/NAV - Average for 1y, 3y and 5y
• Dividend Yield - Average for 1y; Lower than average for 3y; Lower than -1SD for 5y

Author's Opinion

Favorable	Less Favorable
High REIT Sponsor's Shareholding	Low Directors of REIT Manager's Shareholding
High REIT Manager's Shareholding	Low Unsecured Debt %
Long WALE	Low Interest Coverage Ratio
Well Spread Lease Expiry	High Perpetual Securities over Debts
Long Weighted Average Land Lease Expiry	High Top Tenant Contribution
Low Cost of Debt	Low Property Yield
Long WADM	Non-Competitive Management Fees
Low Top Geographical Contribution	Low Distribution on Capital
Low Top Property & Top 5 Properties Contributions	Low Distribution Margin
Low Top 10 Tenants Contribution	High Distribution from Asset Disposal
	DPU Downtrend
	Interest Coverage Ratio Downtrend
	Property Yield Downtrend
	Distribution on Capital Downtrend
	Distribution Margin Downtrend

Gross revenue, NPI (Gross Profit in ART term) as well as REVPAR have improved as compared to the previous 1H. ART continues to perform capital recycling by divesting properties (premium to book value) and re-deploy proceeds to higher-yield acquisitions. With higher vaccination rates and ease of restriction from come countries, ART performance is expected to be improved in 2H 21. Below is the COVID-19 situation update from latest presentation:

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*Disclaimer: Materials in this blog are based on my research and opinion which I don't guarantee accuracy, completeness, and reliability. It should not be taken as financial advice or a statement of fact. I shall not be held liable for errors, omissions and loss or damage as a result of the use of the material in this blog. Under no circumstances does the information presented on this blog represent a buy, sell, or hold recommendation on any security, please always do your own due diligence before any decision is made.