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Ascott Residence Trust Shows One Is Never Too Large To Grow

Ascott Residence TrustThere are many market participants who believe that a company’s size is the kryptonite to its growth. For instance, if there’s a company which is already part of the largest serviced apartment owner/operators in the world, those market participants might never see it as being a growth story.

Yet, Ascott Residence Trust (SGX: A68U) shows how growth can still be achieved with its latest quarterly results released just yesterday. Ascott Residence Trust focuses on hospitality assets all over the world (think serviced apartments and rental housing). It currently has 83 properties with 9,278 apartment units in 12 countries.

Revenue jump of 15%

Ascott Residence Trust had been acquiring assets for the past 2 years and it has been paying off: Revenue for the first half of 2014 increased by 15% year-on-year to S$168.5 million. This is due to an increase in revenue contribution from new assets as well as higher revenue from its existing assets. Its total return for the period had actually improved by 25% year-on-year to S$78.8 million. However, most of the increase had been due to fair value changes for the properties in its portfolio (i.e. a change in the valuation of its real estate).

More importantly for investors, the increase in revenue and total return had helped bump up the trust’s adjusted distribution per unit (adjusted for a one-off distribution in 2013) for the first half of 2014 by 5% to 3.95 Singapore cents compared to the corresponding period a year ago.

From Ascott Residence Trust’s closing price of S$1.26 per unit on Monday, that translates to an annualized yield of 6.3% for investors.

Balance sheet

It’s not all great news for the REIT however as it is seeing more stress in its balance sheet as it continues with its acquisitions. As of 30 June 2014, Ascott Residence Trust has a gearing of 36.4%, a slight deterioration from the ratio of 35.9% in the previous quarter sequentially. Its weighted average debt to maturity is still stable at around 3.9 years.

Foolish Summary

Ascott Residence Trust recently just announced a new acquisition of three properties near the start of July. The acquisitions – if successful – would see the trust moving into the Malaysian market for the first time and increase its foothold in China as well.

Given the REIT’s global investment mandate and its relationship with CapitaLand (SGX: C31) – Ascott Residence Trust is managed, partly-owned, and sponsored by CapitaLand – size might just not be an impediment to the REIT’s future growth.

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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 contributor Stanley Lim doesn’t own shares in any companies mentioned.