CFA Society Singapore
SINGAPORE (Sept 21): Ascott Residence Trust has acquired a prime greenfield site for $62.4 million for its maiden development project. It will build the first co-living property in Singapore’s research and innovation business hub, one-north, Nepal Hill.
The property, which will be branded and named as lyf one-north Singapore, has a total of 324 units. Lyf one-north is targeting to achieve Temporary Occupation Permit (TOP) by 2020 and open in 2021.
Earnings impact from the proposed project will only be felt in 2021.
Compared to acquiring completed properties, developing a greenfield project will allow the trust to have a cheaper entry cost and hence enjoy higher yields, say CIMB-CGS Securities in a Thursday report.
The entire project cost is estimated at about $117 million which will be fully funded by debt. Post-transaction gearing will be 37.2% which is still well within the regulatory limit of 45%.
The expected net yield on a stabilised basis is 6% versus 4% for its existing properties in Singapore.
To recap, the performance of Singapore serviced residence segment has been weak due to the strong supply and weaker corporate demand as companies become more budget conscious.
Revenue per available unit (revpau) of Ascott REIT’s Singapore serviced residence under the management contract segment has been declining since 2012 and the performance has remained weak in recent quarters.
Compared to Ascott REIT’s existing properties which target the mainstream working professionals, lyf one-north will target the rising millennials, characterised by smaller units with larger and more communal spaces and facilities.
It will be the first standalone serviced residence for hip and chic co-living in Singapore and the first co-living development in one-north precinct, a prime developing district where currently there is limited lodging supply with about 500 rooms.
CIMB-CGS Securities is reducing its FY18-FY20F DPU forecasts by 3-6% after removing its acquisition assumption that the trust will acquire an asset which is already generating revenue.
“We maintain Hold on the stock with a lower target price due to limited re-rating catalysts. Upside risks include more acquisitions and downside risks include weaker-than-expected revpau,” says analyst Eing Kar Mei in its Thursday report.
Year to date, units of Ascott REIT have fallen by 13.5% to $1.09 giving it a yield of 6.5% based on FY20F distribution of 7.06 cents.