• EBITDA yield of 6.0%
• Trading at 5.4% FY17F yield
• FV increases slightly to S$1.095

Acquisition of New York Hotel

Ascott Residence Trust (ART) has entered into a conditional sale and purchase agreement to acquire a hotel property in Midtown Manhattan, NY, USA for an aggregate consideration of US$106.0m (~S$148.4m) or US$473k per key at an EBITDA yield of 6.0%. An independent valuation pegged the property value at US$109.2m. The acquisition will be funded by bank loans and/or perpetual securities.

On a pro forma basis, the acquisition is expected to increase historical FY16 DPU by 0.8% from 7.23 S cents to 7.29 S cents. NAV is expected to remain at 1.24 S cents1. Following the acquisition, ART’s US portfolio will make up 12.3% of ART’s total asset size. We expect the acquisition to be completed by end-Jun or Jul.

Averaged 95.2% Occupancy From 2013 to 2016

The freehold asset is a 25-storey building consisting of 224 guestrooms, and is located near key catchment areas and transport nodes such as Times Square, Penn Station and Port Authority Bus Terminal. The property will continue to be managed by third party operator and franchised under the DoubleTree by Hilton brand. We note that the asset has delivered a robust operating performance with an average occupancy of 95.2% from 2013 to 2016.

Medium-term Boost Expected From Hudson Yards

Significantly, we note that the property stands to benefit as the nearby US$30b Hudson Yards – the largest private development in US history – opens in stages. Hudson Yards is expected to contain >18m sq ft of new office, residential, and retail space. While the entire development is due for a 2025 completion, 88% of 5.8m sq ft of office space is already committed as of Dec 2016, with firms such as Blackrock, Kohlberg Kravis Roberts, and Time Warner moving their headquarters to Hudson Yards. Post the acquisition, ART’s gearing is expected to increase slightly from 35.2% to 36.0%.

After adjustments, our fair value increases slightly to S$1.095. Against yesterday’s closing price, ART is trading at 5.4% FY17F yield and 6.3% FY18F yield. Maintain HOLD with a fair value of S$1.095.

Source: OCBC Research - 1 Jun 2017