Latest Earnings From Ascott Residence Trust: Stable Performance Expected Despite Brexit Worries

Last evening Ascott Residence Trust (SGX: A68U) announced its fiscal second-quarter results for the three months ended 30 June 2016.

Ascott Residence Trust is focused on hospitality related assets and its portfolio consists of 90 properties in 14 different countries with nearly 11,700 apartment units. As of June 2016, the properties have a collective value of S$4.9 billion.

With that, let’s jump into Ascott Residence Trust’s latest earnings.

Financial and balance sheet highlights

Here are some of the REIT’s latest financial figures:

  • For the reporting quarter, revenue increased by 21% year-on-year to S$119.4 million mainly due to acquisitions made in 2015 and 2016.
  • Gross profit followed suit, rising 17% from S$49.4 million in the second-quarter of 2015 to S$57.9 million over the same time period.
  • Unitholders’ distribution climbed by 9% to S$35 million from a year ago.
  • This drove a 2% increase in distribution per Unit (DPU), from 2.09 cents in the second-quarter of 2015 to 2.13 cents. But, if a one off gain of S$3.5 million was removed, Ascott Residence Trust’s DPU in the reporting quarter would have been 1.91 cents instead.
  • The trust ended the reporting quarter with a net asset value (NAV) per unit of S$1.32, down 3.6% from the S$1.37 seen a year ago.

Let’s now move onto Ascott Residence Trust’s debt profile:

  • The gearing level rose from 35.8% in the second-quarter of 2015 to 41% in the reporting quarter.
  • But, the percentage of debt on fixed-rates had improved from 78% to 80%. In addition, the interest coverage ratio had increased from 3.9 times to 4.1 times. The effective borrowing rate also stepped down from 2.9% to 2.5%.
  • The trust ended the reporting quarter with a weighted average debt to maturity of 4.9 years, up from 4.3 years a year ago.

Business highlights

Given Ascott Residence Trust’s portfolio of hospitality assets, the revenue per available unit is an important number of investors to track. The metric increased by 10% year-on-year from S$129 in the second-quarter of 2015 to S$142 in the reporting quarter.

The trust also reported an average length of stay of four months, which is a slight decline from the 4.1 months seen in the same quarter a year ago.

Investors may also be interested to know that 39% of the trust’s gross profit in the second-quarter of 2016 comes from master leases and management contracts that have minimum guaranteed income. Altogether, there are 32 properties out of the REIT’s 90 that have such arrangements. The master leases and management contracts also have a weighted average tenure of 3.9 years.

A year ago in the second-quarter of 2015, some 50% of Ascott Residence Trust’s gross profit had come from the master leases and management contracts.

A future outlook

Ascott Residence Trust has properties in Europe. One of the biggest geopolitical events in the continent in recent times is Brexit – the vote by the people of the United Kingdom to leave the European Union. Regarding this development, the trust’s manager commented that Brexit “has led to uncertainties and weak business sentiments, which is expected to impact business travel as corporates evaluate their options.”

But, it also added:

“The silver lining to the impact from Brexit will be the potential boost to leisure travel due to the weaker GBP, providing support for accommodation demand.

As at 2Q 2016, Ascott REIT’s properties in UK which are located in London made up 10.4% of total assets. These properties are underpinned by management contracts with minimum guaranteed income which provides a downside protection to the operating income.

Notwithstanding that about 10.2% of Ascott REIT’s YTD [year-to-date] June 2016 gross profit is contributed by GBP [the pound sterling], the impact due to the depreciation of GBP is mitigated by Ascott REIT’s well-diversified portfolio over 14 countries in Asia Pacific, Europe and the United States of America.”

On a more global level, this is what Ascott Residence Trust’s manager has to say regarding its future prospects:

“Going forward, the slow-paced global economic recovery, coupled with the uncertainties associated with the formalisation of Brexit and security concerns, is likely to weigh on the global growth outlook.

Notwithstanding, the performance of the properties in Europe is expected to remain stable as the properties in France are primarily underpinned by master leases and properties in Belgium and Spain are underpinned by management contracts with minimum guaranteed income.

We are confident that Ascott REIT with its diversified portfolio and extended-stay business model will continue to deliver stable income and returns to its Unitholders. The Group’s operating performance for FY 2016 should remain profitable.”

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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.