• Good set of results within expectation
• Portfolio RevPAU up 3% YoY
• FV remains at S$1.25

Adjusted DPU Up 4% YoY

Ascott Residence Trust (ART) posted a solid set of 1Q19 results. Gross revenue increased 3% to S$115.9m. Gross profit increased 12% to S$54.6m on the back of higher revenue as well as new accounting standards (FRS 116) with effect from 1 Jan 2019. Excluding the FRS 116 adjustments, gross profit grew 2% YoY. DPU grew 7% YoY to 1.45 S cents.

Excluding a oneoff realised exchange gain arising from the repayment of foreign currency bank loans, 1Q19 DPU grew 4% to 1.33 S cents or 18.9% of our full-year forecast. We consider this within expectations given the seasonality of DPU for ART.

RevPAU Growth: SG and PH Are Standouts

Portfolio RevPAU increased 3% YoY to S$133. Standouts include Singapore which saw a 22% RevPAU increase to S$201. The strong growth was attributed to “higher market demand” for the assets and notably, stands in sharp contrast with what we have seen for SG assets of other hospitality REITs.

We attribute the divergence partly to Ascott’s SG assets operating in a higher hotel tier – according to Singapore Tourism Board (STB) figures, luxury hotels showed outperformed upscale and mid-tier hotels in terms of YoY RevPAR growth for Jan and Feb 2019. The Philippines also saw a strong RevPAU increase of 25% (local currency terms) on the back of refurbished apartments at Ascott Makati, and Japan saw a 8% RevPAU increase due to strong leisure demand.

Meanwhile, Indonesia saw a 8% RevPAU decline due to ongoing renovations at Somerset Grand Citra and Malaysia saw a 7% RevPAU decline due to keen competition.

5.9% FY19F Dividend Yield as at 30 Apr’s Close

Out of all the hospitality REITs under our coverage, we see the most upside for ART as at 30 Apr’s closing prices. We continue to like ART for its highly geographically diversified portfolio of high quality assets amidst the ongoing macroeconomic uncertainties. However, valuations as at 30 Apr’s close are not compelling.

According to Bloomberg consensus, ART is trading at a 5.97% blended forward dividend yield, around more than 1 standard deviation below its five-year average. After adjustments, our fair value remains at S$1.25. As at 30 Apr’s close, ART is trading at a 5.88% FY19F dividend yield (our own forecast) and trading at 0.96x P/B. Gearing stands at 35.7% as at 31 Mar 2019. We maintain HOLD on ART.

Source: OCBC Research - 2 May 2019