(Mar 25): Ascott Residence Trust’s (Ascott REIT) portfolio composition has changed subtly over the years. In 2015, for instance, China was its largest exposure, accounting for 17% of its portfolio by asset size, followed by Japan with 15.9% and Singapore at 13.3%. As at Dec 31, 2018, Singapore was the largest with 20.3%, followed by Japan at 12.8% and the US at 12.5%. In terms of gross operating profit (GOP, the equivalent of net property income), the US contributed 16.3%, followed by Japan with 13%, and France with 12%.

Beh Siew Kim, CEO of Ascott REIT’s manager, says: “Over the years, Ascott REIT has moved from pan-Asia to Europe and, in 2015, to the US. We have moved from Asia-Pacific contributing to our income… to deriving more than 75% of our income from developed countries today. So, there is a probability of getting ourselves into the FTSE EPRA/NAREIT Global Real Estate Index as we continue to increase our investment in developed markets.”

In FY2018, Ascott REIT’s earnings before interest, taxes, depreciation and amortisation (Ebitda) according to the FTSE classification of markets was 75% for developed markets. To qualify for inclusion in the FTSE EPRA/NAREIT Index, a company must report 75% of Ebitda from developed markets for two consecutive years, and have a healthy free float. Once in, Ebitda from developed markets is set at 50%.

“We’ve also spoken to NAREIT on the fact that we’ve increased our contribution from developed markets over the past few years, [and that] the trend of investments we’ve made in the last few years is to developed markets,” Beh says, pointing out that Ascott REIT’s diversification is to anchor its stable income and distributions. Its  $5.3 billion portfolio comprises 73 properties in 37 cities in 14 countries.  “Eighty-five per cent of our GOP are
from eight key markets, which are largely stable and protected on the downside,”
she says.

DPU for FY2018 rose 1% to 7.16 cents, and prices are trading at a mild discount to net asset value of $1.22.

OCBC Investment Research has Ascott REIT as its top hospitality pick: “[Ascott REIT] boasts a highly geographically diversified portfolio of high-quality assets. Given the ongoing macroeconomic uncertainties, we look upon this defensive positioning favourably.”

In January, Ascott REIT announced the sale of Ascott Raffles Place for $353 million for a gain of $134 million. Beh says she may use the proceeds for an acquisition.

“Post the divestment of Ascott Raffles Place, gearing is expected to drop to 32+%. This translates into a debt headroom of close to $1 billion, and offers [Ascott REIT] greater flexibility to pursue DPU-accretive acquisitions,” OCBC says.

OCBC expects DPU to inch higher this year to 7.2 cents, giving a yield of 6.3%.

This story appears in The Edge Singapore (Issue 874, week of Mar 25) which is on sale now. Subscribe here