Consensus keeps Ascott Residence Trust at 'hold' but DBS has it at 'buy'

Consensus keeps Ascott Residence Trust at 'hold' but DBS has it at 'buy'

PC Lee
30/01/19, 05:15 pm

SINGAPORE (Jan 30): Despite Maybank Kim Eng and consensus maintaining Ascott Residence Trust (ART) given its disappointing DPU performance over the past few years, DBS Group Research is maintaining its “buy” call on the REIT.

While acknowledging the Street’s concerns, DBS analyst Mervin Song says what drives ART’s share price is the REIT’s strategy of selling properties that have limited growth potential and recycling the proceeds into better-yielding assets.

This ability translates to selling its properties above book value while at the same time reduce its reliance on equity raising to drive growth, warrants ART to trade above its book value as implied in DBS’s $1.35 target price, says Song.

Maybank, on the other hand, expects ART’s returns-and-risk profile will continue to be influenced by global macros, while its 2% DPU CAGR lags peers.

“We prefer CDL Hospitality Trusts ($1.60, TP $1.80) and Far East Hospitality Trust (63 cents, TP 75 cents) which are better leveraged to a Singapore RevPAR rebound,” says analyst Chua Su Tye.

In 4Q18, ART’s revenue and gross profit rose 1.5% y-o-y and 2.5% y-o-y as contributions from its existing properties and a full-quarter accretion from Ascott Orchard in Singapore acquired Oct 2017 helped offset divestments in Shanghai and Xian. Gross profit from its stable income was flat when a rent reduction for renewal of its French master leases was offset by stronger demand in Singapore and Spain.

Growth income from management contracts rose 4.8% y-o-y/3.6% q-o-q with stronger contributions from US, Japan and Singapore on improving RevPAUs.

Singapore revenue rose 6.7% y-o-y on stronger RevPAU, up 7.0% y-o-y, but gross profit fell 7.4% y-o-y on higher staff costs and marketing expenses. ART is planning to deepen its Singapore core over the medium term with its maiden co-living development property at one-north set to open in 2021.

Meanwhile, the Ascott Raffles Place divestment at a 3% cap rate is targeted to be completed in May. The transaction, together with other recent deals, continues to support a positive sector growth outlook on the back of demand recovery and tapering 2018-2021 supply.

Management is focused on acquisitions in Australia, Europe and US and looks to accelerate growth to increase its developed markets exposure as it eyes inclusion in the NAREIT index to boost trading liquidity. Aggregate leverage at 36.7% as at end Dec 2018 could improve to 32% from its divestment proceeds, implying $1.0 billion in debt headroom.

“After the better than expected 4Q18 results, we raised our DCF-based TP to $1.35 from $1.25,” says DBS’s Song.

Units in ART closed flat at $1.19 on Wednesday, giving a dividend yield of 6.1% for FY20F.

Living it up

SINGAPORE (Mar 25): This is the season for indices. On March 20, Singapore was ranked 34th in the World Happiness Index — less happy than Taiwan, but far more cheery than Hong Kong and China, as well as its neighbours, Thailand, Malaysia and Indonesia. Globally, the Scandinavian and north European cities top the index; and New Zealand, Canada and Austria round out the top 10. The index this year focuses on happiness and the community, taking into account how happiness has evolved over the years, as affected by technology, social norms, conflicts and government policies. A week earlier, th....

The charismatic bankrupt who allegedly pulled the strings behind Singapore's largest stock manipulation scandal

SINGAPORE (Mar 26): Garbed in purple overalls, John Soh Chee Wen cuts a relaxed figure as he takes his seat. The garment falls fittingly on his athletic frame, not unlike a designer suit. It could well have made a fashion statement, save for the word "prisoner" emblazoned in white across the back. As his legal team huddled around him before the start of the trial, the 60-year-old is a picture of calm. At one point, he casually flashes a thumbs up at his lead counsel, N Sreenivasan, a managing director and senior counsel at Straits Law LLP. Then, as he turns back to his seat in the dock, ....

OCBC still bullish on banking stocks after a lacklustre FY18

SINGAPORE (Mar 26): OCBC Investment Research remains bullish on Singapore’s banking space while keeping its sector “overweight” with “buy” calls on both DBS and UOB, which have been given fair value estimates of $29.31 and $28.30, respectively. Both stocks had dividend yields of 4.8%, with DBS and UOB trading at the respective book values of 1.3 times and 1.1 times, or at an average of 1.2 times historical book as at the close of Wednesday. In a Tuesday report, OCBC analyst Carmen Lee notes that raising this average to 1.3 times book and factoring a 10% premium for DBS over the....