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The Three Numbers That Service Ascott Residence Trust

ascott residence logoImage what it must be like to be the owner of 82 properties with 9,082 separate units in 32 cities across 12 countries.

That is precisely what Ascott Residence Trust (SGX: A68U) does. It is one of the leading operators of serviced residences in the Asia Pacific and Europe. It also boasts a Return on Equity (RoE) of 10.6%, which is one of the highest on the Singapore market.

The REIT’s high RoE can be traced back to its exceptional Net Income Margin. At almost 66%, Ascott Residence Trust generates S$66 of bottom-line for every $100 of top-line revenue. Over the last five years, the RoE has averaged 65%, which is almost quadruple the returns for Singapore’s blue chips. The average RoE for the Straits Times Index (SGX: ^STI) is 15%.

Ascott Residence Trust is not especially efficient, though. Its Asset Turnover of 0.1 suggests that it generates around 10 cents of sales for every dollar of asset employed in the business. That said, the REIT’s Asset Turnover is better than peers CDL Hospitality Trust (SGX: J85) and Far East Hospitality Trust (SGX: Q5T).

In common with other REITs, Ascott Residence Trust, which owns Ascott Raffles Place and Somerset Liang Court in Singapore, makes use of debt. Its Leverage Ratio of 1.6 is not excessive, though.

By unpacking Ascott’s Return on Equity, it is easy to see the three numbers that serves it well. Its RoE of 10.6% is the product of an exceptional Net Income Margin of 66%; a modest Asset Turnover of 0.1 and a modicum of Leverage Ratio of 1.6.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore Director David Kuo doesn’t own shares in any companies mentioned.