CFA Society Singapore
SINGAPORE (Apr 19): Analysts were slightly disappointed with Ascott Residence Trust’s 1Q results which came in weaker than expected.
Revenue increased by $1.5 million or 1.4% y-o-y to $112.8 million mainly due to $8.3 million additional revenue from last year’s acquisitions, offset by a $4.0 million decrease in revenue from divestments and another $2.8 million from existing properties.
Last year, ART had acquired two German assets in May, its third US property in August, and Ascott Orchard Singapore in Oct.
Overall, 1Q18 distributable income increased 16.1% to $29.2 million, a figure which includes a one-off realised exchange gain of $1.6 million.
In a Thursday report, OCBC analyst Deborah Ong says the 7% y-o-y RevPAU decline for ART’s Singapore assets took her by surprise, especially after a 6% y-o-y increase in 4Q17.
From what Ong understands, tighter restrictions on employment pass issuance and generally less corporate travel has affected the demand for long-term stays. Looking ahead, management still remains cautious on corporate demand locally.
After adjustments, OCBC's fair value drops slightly from $1.16 to $1.14 while maintaining its "hold" on the REIT.
CIMB considers ART's 1Q18 DPU to be a slight miss as first quarter is seasonally the weakest.
Adjusting for the realised forex gain of $1.6 million, 1Q18 DPU would have registered a 9% y-o-y improvement.
Analyst Yeo Zhi Bin says ART's results continued to be a mixed bag with particular organic weakness in Japan, the Philippines, Vietnam and the US. China achieved healthy operating performance.
Gross profits from Japan fell 29% y-o-y due to the divestment of 18 rental housing properties and 7% drop in RevPAU due to keen competition and new supply. The Philippines slid 30% y-o-y due to ongoing renovation of Ascott Makati. Vietnam decreased 9% y-o-y on weaker demand. In the US, same-store RevPAU decreased 4% y-o-y due to ongoing renovation of Sheraton Tribeca and keen competition. Otherwise, China improved 4% y-o-y, despite the divestments. Singapore was soft with RevPAU falling 7% y-o-y.
"We reduce our FY18-19 DPU by 3.6-5.2% to factor in the organic weakness," says Yeo. CIMB has a "hold" with $1.14 fair value on the stock.
UOB Kay Hian saw the decline as largely due to an enlarged unit base from the $442.7 million rights issue to mainly fund the acquisitions of Ascott Orchard Singapore and German properties, and lower-than-expected income streams from these assets.
"Results were below our and consensus expectations, with 1Q18 DPU representing 18.6% of full-year forecasts" says analyst Vikrant Pandey. UOB has a "hold" with a $1.23 target price.
On the contrary, DBS is maintaining its "buy" call on ART with a revised target price of $1.30.
Analyst Mervin Song believes the recent share price correction has been overdone as investors have ignored the conservative valuation of ART’s portfolio, now pricing it at a discount to book.
Song says ART's DPUs should be bottoming out as it gets aggressive selling properties with "limited growth" prospects. ART would then put the proceeds into better-yielding assets, helping earnings and unitholder payouts.
More importantly, ART's ability to sell its properties above book value while reducing its reliance on equity raising to drive growth, warrants ART to trade above its book value, adds Song.
As at 11.37am, units of ART are trading at $1.14 giving it 6% FY18 yield.