Capital Backed Distributions, BUY

• Ascott Residence Trust (SGX:HMN)’s 1H21 DPU jumped ~95% y-o-y and ~3% h-o-h; it would have risen ~35% y-o-y and 102% h-o-h, excluding a S$20m distribution top-up (compared to S$40m in 2H20), driven by stronger contribution from its growing stable income assets.
• RevPAU improvement in 2Q21 at ~51% y-o-y and ~18% q-o-q, is expected to gain traction in 2H21, as the reopening of borders gathers pace.
• We continue to like Ascott Residence Trust for its diversified portfolio, concentrated long-stay assets, strong balance sheet, and S$300+m in residual divestment gains to support capital distributions amid slower DPU growth. We raised our FY22-23 DPU forecast for Ascott Residence Trust by 5% from its recent deals. Our DDM-based target price for Ascott Residence Trust is raised to S$1.30 (COE 5.9%, LTG 2.0%).

RevPAU Recovery Was Broad-based

• Ascott Residence Trust's revenue and gross profit fell ~11% y-o-y and ~7% y-o-y in 1H21 but jumped ~15% h-o-h and ~35% h-o-h, while 2Q21 revenue and gross profit increased at a stronger 45% y-o-y and 56% y-o-y.
• It saw RevPAU improvement q-o-q across most markets in 2Q21 were on the back of higher occupancies (which rose from ~50% to mid-50%), underpinned by leisure demand in Europe (at 28.9% of 1H21 gross profit), corporate demand in China (at 5.4%), block bookings (in Australia, Singapore, US), and long stays (in Indonesia, Philippines, Vietnam).

Fundamentals Improving, Stable Income on a Rise

• Stable income (which excludes the management contracts of its serviced residences and hotels) has risen lockdowns and border controls, which is expected to strengthen from FY22.

Strong Balance Sheet, Acquisition Upside

• Ascott Residence Trust's AUM rose ~2% h-o-h, as S$285m of acquisitions in 1H21 at ~5% EBITDA yield was offset by S$580m of divestments at ~2% exit yield.
• Gearing remains low at 35.9% (from 36.3% as of end-Dec 2020), with debt headroom at S$1.9b (at 50% limit) supportive of deals. Management is eyeing acquisitions from student accommodation and multi-family segments, and it aims to scale this from ~9% currently to 15%-20% of AUM.

Source: Maybank Kim Eng Research - 27 Jul 2021