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Ascott Residence Trust: 2018 Half Year Results

Ascott Residence Trust (SGX:A68U), the largest residential REIT listed in Singapore, released its earnings results for the first half of 2018 on Tuesday, 24 July 2018. The trust owns a portfolio of 73 properties across 14 countries and 37 cities, with a total value of S$5.3 billion. Here are 10 key takeaways from its earnings update:

1. Revenue for the second quarter of 2018, which ended on 30 June 2018, increased 6% from the corresponding quarter last year to S$130.5 million. Likewise, gross profit increased 7% to S$63.1 million from S$59.0 million. The increase was largely due to contributions from properties acquired in 2017.

2. Unitholder’s distribution decreased 15% to S$39.8 million due to absence of one-off foreign exchange gain of S$11.9 million included in the second quarter last year. Distribution per unit (DPU) was maintained at 1.84 cents. Adjusted DPU, which is restated for a rights issue last year of 481 million new units and excludes the one-off gain, increased 13% year-on-year.

3. For the first half of 2018, revenue rose 4% year-on-year to S$243.3 million from S$234.9 million. Gross profit increased 5% to S$111.8 million from S$106.4 million. DPU decreased 5% to 3.19 Singapore cents from 3.36 Singapore cents and adjusted DPU increased 11% to 3.12 cents from 2.80 cents.

4. Ascott Residence Trust utilises three contract types — master leases, management contract with minimum guaranteed income and management contracts. The revenue breakdown and gross profit contribution from the three contract types are shown in the charts below:

Source: Ascott Residence Trust 2018 Q2 Earnings Presentation

Source: Ascott Residence Trust 2018 Q2 Earnings Presentation

5. As of 30 June 2018, the trust had a gearing ratio (debt over assets) of 35.7%, with additional debt headroom of S$875 million before reaching the regulatory leverage limit of 45%. Borrowing cost stood at 2.3%, and interest cover (income against interest expense) was 4.5 times. It had 84% of its borrowings on fixed rate and a weighted average debt to maturity of 3.9 years.

6. During the quarter, the group recorded a S$26.7 million revaluation surplus due to higher valuation of its properties in Vietnam. Consequently, net asset value per unit rose to S$1.23 from S$1.22.

7. The weighted average tenure for master leases is 5.0 years, while average length of stay by guests remained stable at 3.1 months.

8. The trust gave updates on asset enhancement initiatives during the quarter. There were four in total underway. (1) Sheraton Tribeca New York Hotel completed its renovation of public areas, guest rooms and toilets in May this year. (2) The renovation of 183 apartment units in Ascott Makati in the Philippines is targeted to be completed by end July 2018. (3) The renovation of Somerset Grand Hanoi is expected to be completed by end of this year. (4) Finally, the renovation of 44 apartment units in Somerset Grand Citra Jakarta will be completed in the first quarter of 2019.

9. On the outlook for the next 12 months, management pointed out that the World Economic Outlook forecast global growth of 3.9%. However, the optimistic sentiments from earlier this year have lessened to some extent due to tightening of global financial conditions and trade tensions. The trust also mentioned that continuous competition from direct and indirect players will continue to pose challenges. Interest rates hikes are also expected this year and the next two years. To counteract these challenges management said, “Ascott REIT remains dedicated in managing and enhancing our properties to stay competitive… At the same time, we continue to stay alert for potential yield-accretive acquisitions and divestment opportunities that strengthen our portfolio for sustained growth.”

10. At the time of writing, units of Ascott Residence Trust exchanged hands at S$1.14 per unit. This translates to a price-to-book ratio of 0.93 and an annualised distribution yield of 5.6%.

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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 contributor Jeremy Chia doesn’t own shares in any companies mentioned.