Latest Earnings From Ascott Residence Trust: Lower Distributions Seen, But The REIT’s Confident Of Growth

Ascott Residence Trust (SGX: A68U), a real estate investment trust with a focus on hospitality assets, had announced its first-quarter earnings results for its fiscal year ending 31 December 2016 last Friday.

The REIT’s current portfolio consists of 89 properties in 14 different countries with an ensemble of nearly 11,300 apartment units. Ascott Residence Trust has total assets worth S$4.8 billion as of 31 March 2016.

With that, let’s take a closer look at the REIT’s quarterly earnings.

Financial highlights

Here are some important financial figures from Ascott Residence Trust:

  • Revenue for the reporting quarter came in at S$105.5 million, up 17% year-on-year.
  • A higher revenue didn’t really flow through to unitholders’ distribution though as it increased by only 1% to S$27.3 million compared to the same quarter a year ago.
  • The REIT’s distribution per unit (DPU) had actually decreased from 1.76 cents in the first-quarter of 2015 to 1.75 cents as a result of a higher unit count arising from a private placement exercise done in late March 2016.

Moving on, let’s look at the debt profile of the REIT.

Ascott Residence Trust balance sheet
Source: Ascott Residence Trust’s earnings presentations

With reference to the table above, Ascott Residence Trust’s gearing at the end of the reporting quarter was 38.9%, a slight increase from the 38.7% seen the year earlier. The good news is that the REIT’s interest cover had remained unchanged and it has managed to lower its effective borrowing rate. The REIT currently has approximately 78% of its total borrowings on fixed rates and that may help cushion the REIT from any short-term interest rate hikes.

Ascott Residence Trust ended the reporting quarter with a net asset value per unit of S$1.34, a decline from the S$1.36 see at end-March 2015.

Business highlights and a future outlook

Ascott Residence Trust ended the first-quarter of 2016 with a 10% year-on-year increase in its revenue per available unit (RevPAU) as a result of the properties acquired in 2015. The properties are namely, the Citadines in Melbourne, Australia, four rental housing properties in Osaka, Japan, and Element New York Times Square West.

During the reporting quarter, the REIT had announced the acquisition of a second property in New York. When the deal’s completed in the second-quarter of this year, it’d help push the trust’s asset size to S$5.0 billion.

In the earnings release, the REIT had shared some of its ongoing initiatives to improve its assets and the results these actions might bring:

“The ongoing refurbishment at Citadines Barbican London and Ascott Makati, as well as the final phase of refurbishment at Somerset Xu Hui Shanghai, are on track for completion by 2Q 2016 [second-quarter of 2016]. As with all previous successful asset enhancement initiatives, we expect to see uplift in occupancy and ADR [average daily rate] following these refurbishments, which will contribute to overall growth in RevPAU in 2016.”

On the outlook ahead, Ascott Residence had the following to say:

“The global economy continues to remain uncertain, with the International Monetary Fund cutting its global growth forecast for 2016 from 3.4% to 3.2%. Notwithstanding the muted global growth outlook, the United Nations World Tourism Organisation has predicted a 4% growth in international visitor arrivals in 2016.

We therefore expect demand for the serviced residences to remain healthy. With the extended-stay business model, coupled with the stability of income through its master leases and serviced residence management contracts with minimum guaranteed income, we are confident that Ascott Reit is well-positioned to provide stable income and returns to its Unitholders.”

Lastly, Ascott Residence Trust commented that it remains confident of achieving a target portfolio size of S$6 billion by 2017 and is on the lookout for “accretive acquisitions”  in Australia, Japan, Europe, and the US.

The REIT closed at S$1.13 last Friday. At that price, Ascott Residence Trust traded at a price-to-book ratio of 0.84.

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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 Esjay does not own shares in any companies mentioned.