CFA Society Singapore
SINGAPORE (Apr 9): Phillip Securities has started Ascott Residence Trust (ART) at ‘buy’ with $1.36 target as the REIT offers income stability and inorganic growth.
ART is an owner-operator of serviced residences with 79 properties totalling 11,430 keys spanning 14 countries.
About 85% of gross profit comes from eight key markets of United States, Japan, UK, France, Vietnam, Singapore, China and Australia.
ART’s serviced residences outside the US are managed under three core brands – Ascott, Citadines and Somerset.
Ascott Limited, ART’s sponsor, is a wholly-owned subsidiary of CapitaLand which has a market cap of $15.3 billion.
Among its investment merits, Phillip analyst Natalie Ong says 41% of ART’s gross profit is stable as this is derived from master leases and management contracts with minimum guaranteed income while the remaining 59% is derived from management contracts.
Meanwhile, 70% of the room stock is for long-term stays and the remaining 30% for higher-yielding short-term stays.
Sponsor, Ascott Limited, has grown at a CAGR of 36.5% over the past three years to 100,000 keys over 172 cities across 33 countries as at Jan 21. Ascott Limited is targeting 160,000 keys by 2023.
Currently, ART has a right-of-first-refusal (ROFR) pipeline of 20 properties.
Following the divestment of Ascott Raffles Place, ART’s gearing is expected to fall to 30.6% from 36.7%.
Given ART’s significant asset base of $5.3 billion, this gives it a debt headroom of $880 million assuming 45% gearing.
In addition, with 70% of room stock used for long-term stays, there is less wear and tear in comparison with hotels which have more frequent turnovers.
Also, serviced residences only offer limited services, which translates into lower capex and manpower requirements.
As at 10.20am, units in ART are trading 1 cent higher at $1.19 or 0.82 times FY20E NAV.