PhillipCapital’s Natalie Ong has maintained her “buy” call and target price of $1.17 on Ascott Residence Trust despite a weaker set of 2HFY2020 results.
ART reported a 39.5% y-o-y drop of revenue to $161.4 million, down from its 2HFY2019 figure of $266.5 million. Gross profit also dropped by more than half, from $130.3 million to $61 million.
FY2020’s distribution per unit of 3.03 cents also came in below PhillipCapital’s expectations, at 75% of its forecast. Ong noted capital distribution from divestment gains formed 47.8% of DPU.
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She noted the Trust has managed to execute divestments above book value despite the Covid-19 pandemic, with Somerset Azabu East Tokyo divested in December 2020 for $76 million. The divestment was 63% above book valuation, representing a divestment yield of 2% and net gain of S$30.6 million. Its S$13million divestment of Citadines City Centre Grenoble in France will be completed in 1Q21, at 35% above book, producing a net gain of S$44k.
Earlier in the year, ART divested Ascott Guangzhou and Citadines Didot Montparnasse Paris for $159million and $36million, 52% and 69% above book respectively.
However, 2HFY2020/FY2020 revenue per available unit (RevPAU) was down 69% and 61% y-o-y. Ong said RevPAU in seven of ART’s markets was down 56-86% in 2HFY2020, with China (-27% y-o-y) the least impacted.
Domestic travel returned to pre-pandemic levels in 3QFY2020 and most of 4QFY2020, but domestic travel fizzled out in 4QFY2020 due to a resurgence of the Covid-19 virus in China, France, Japan, the US and Vietnam.
Most notably, ART has acquired purpose-built student accommodation in the US to shore up its revenue.The PBSA, Signature West Midtown, is located within a 5-10-minute walk from the Georgia Institute of Technology (Georgia Tech) in Atlanta, US.
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Total acquisition cost for the 183-unit/525-bed PBSA is S$130millon, which has an EBITDA yield of 5% and will add 4.4% DPU on a proforma basis. Georgia Tech is ranked the 35th top university in the US and second in Georgia. Domestic students account for 95% of its US student population, with 80% living in student accommodation. As such, occupancy for PBSAs in the US is around 90% throughout the year.
Separately, Ong highlighted that in May 2020, four French master leases were renewed on variable terms while three UK management contracts with minimum guaranteed income (MCMGI) were renewed as management contracts. An additional 15 French master leases were renegotiated as MCMGIs in December 2020, effectively lowering the amount of fixed, stable rents and introducing a variable rent component.
However, she said that their high occupancy and longer average stay of about one year should help to increase income stability, especially since COVID-19 has set a new historical low for the
hospitality sector.
As at 12.14pm, shares of ART were trading at $1.05, with a FY2021 dividend yield of 4.2% and Price to Net Asset Value ratio (P/NAV) of 0.96.
