What Does the Future Hold for Dividend Payer Ascott Residence Trust? Part 1

Ascott Residence Trust (SGX: A68U) has beaten the market in the past five plus years. The trust provided total returns — including dividends and rights issue — of about 57% from 1 January 2010 to the closing price last Friday (note: 23 January 2015). In comparison, the capital gain return for the SPDR STI ETF (SGX:ES3), a proxy for the Straits Times Index (SGX:^STI), was around 17% for the same duration.

Ascott Residence Trust is a real estate investment trust (REIT) that mainly owns serviced residences or rental housing properties. The REIT is managed by a wholly-owned subsidiary of Capitaland Limited (SGX:C31). As of 31 December 2014, it had 90 properties with 10,502 apartment units in 37 cities.

Being a shareholder of a REIT gives you partial ownership to all the real estate that it owns. As per the Monetary Authority of Singapore (MAS), REITs are mandated to distribute at least 90% of its profits as dividends to enjoy tax transparency. I also wrote about a few pointers for picking REITs here.

Over the past five plus years between 2010 and 2014, Ascott Residence Trust has distributed a dividends totaling around 41 cents per share.

Financial Year Distribution per Unit (Singapore cents)
2010 7.54
2011 8.53
2012 8.76
2013 8.40
2014 8.20

Source: REIT’s Earnings Presentation; excluding rights issue

While the returns from Ascott Residence Trust has been satisfactory — as Foolish investors, we should look behind the curtains to understand how sustainable the dividends are, and how it can grow.

A closer look

To get a sense of the resilience of the property portfolio, we can look at the gross revenue by lease type of the trust.

Ascott  - 1

Source: REIT Earnings Report

The financial reporting year and calendar year coincide for Ascott Residence Trust. The REIT’s revenue can be organized in three different buckets: master leases, management contracts with minimum income guarantee, and management contracts. The first two buckets provide more income stability.

Overall revenue for Ascott Residence Trust has grown at an annualized compounded growth rate of 14.6% over the period above. As we can see from the graph, much of the growth has come from the master lease and management contracts with minimum guaranteed income segments. As of 2014, the two segments made up close to 40% of revenue.

Over the time period above, Ascott Residence Trust has also grown its portfolio from 38 properties at the start of 2010 to 90 properties at the end of 2014. On 1 October 2010, 28 serviced residences were injected into the REIT — which should account for a large part of revenue growth in the past five years.

Ascott - 2 Ascott - 3

Source: REIT Earnings Presentation

The two graphs above show the geographical source of revenue. While most countries has seen fluctuating revenues, four countries – namely United Kingdom, France, Japan and China – has contributed the most to the overall revenue growth of Ascott Residence Trust. In terms of geographical composition, six countries – Singapore, China, Vietnam, Japan, France and United Kingdom – make up 76% of the REIT’s total revenue. In fact, close to 90% of Ascott Residence Trust’s revenue comes from beyond the shores of Singapore, making the REIT an overseas investment play.

Foolish summary

The exercise above is to look at the sales alone. As a next step, we should observe if the topline growth trickles down to the bottom-line for it to sustain its growth in share price. You can read more about it in the next article here.

Ascott Residence Trust last traded at S$1.29 last Friday. This translates to a historical price-to-book ratio of 0.94 and a distribution yield of around 6.3%.

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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 Chin Hui Leong doesn’t own shares in any companies mentioned.