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Ascott Residence Trust’s Latest Earnings: Stable DPU Supported by Diversified Property Portfolio

Ascott Residence Trust (SGX: A68U) is Singapore’s largest hospitality REIT with an asset value of S$5.5 billion as of 30 June 2019. The REIT’s portfolio consists of 74 properties in 37 cities across 14 countries, including cities such as Berlin, Guangzhou, Paris, Tokyo, and New York.

ART reported an 8% year-on-year increase in distribution per unit (DPU) to 1.98 Singapore cents for its Q2 2019 earnings, while revenue was up 2% year on year, and distributable income was up 8% year on year.

Investors should note that the distributable amount was affected by a realised exchange gain of S$3.1 million from the divestment of Ascott Raffles Place Singapore. Stripping this out, distributable income would have been up just 0.5% year on year at S$40 million versus S$39.8 million. DPU after adjusting for this exceptional item would have been flat year on year at 1.84 Singapore cents. Using the trailing-12-month (adjusted) DPU of 6.84 Singapore cents, ART is trading at a historical dividend yield of around 5.3% at the last traded price of S$1.30.

Proactive capital recycling

The REIT continued to actively manage its portfolio by divesting Ascott Raffles Place Singapore in January this year for S$353.3 million, which is 64% above the property’s latest valuation as of 31 December 2018. The proceeds were partially used to fund the acquisition of Citadines Connect Sydney Airport (formerly Felix Hotel), a prime freehold limited-service business hotel located in Sydney, Australia, for 60.6 million Australian dollars in March. The CEO of ART’s manager, Siew Kim Beh, mentioned that the divestment will give the REIT financial flexibility to invest in higher-yielding properties and that the proceeds may also be used for paying down debt and developing ART’s lyf one-north Singapore.

Strong financial metrics

ART also reported strong financial metrics, with gearing at 32.8% as of 30 June 2019, way below the statutory limit of 45%. This provides the REIT with debt headroom of around S$1.1 billion for DPU-accretive acquisitions. 88% of the debt is on fixed rates, which mitigates the impact of rising interest rates, and the REIT has a very low effective borrowing cost of just 2.1%.

DPU upside with upcoming merger and development

Investors can look forward to DPU upside with the recently announced proposed combination of ART with Ascendas Hospitality Trust (SGX: Q1P), which will add a diversified portfolio of 14 quality hotels valued at around S$1.8 billion to ART’s portfolio. These properties will strengthen ART’s presence in the Asia Pacific region, where demand for business travel remains robust, while also providing an expected 2.5% uplift to DPU for ART unitholders.

At one-north Singapore, a ground-breaking ceremony was held for ART’s lyf development, with the property scheduled to open in 2021. lyf is an interesting co-living concept created by ART that’s aligned with the current global trend in co-working and co-living spaces.

The most resilient hospitality REIT

Of the listed hospitality REITs, ART continues to be one of the most resilient thanks to its diversified portfolio and active capital recycling efforts. Though DPU was flat year on year (after excluding one-off effects), this is much better than CDL Hospitality Trust (SGX: J85), Far East Hospitality Trust (SGX: Q5T), and Frasers Hospitality Trust (SGX: ACV), which reported 3.3%, 9.9%, and 10.2% year-on-year declines in DPU, respectively, for their last quarters.

The REIT also has a right of first refusal on approximately 20 assets under The Ascott Limited’s pipeline. Having a strong sponsor is beneficial for the REIT as it provides a ready pipeline of potential assets to be injected into the REIT. ART is indeed a beacon of strength among listed hospitality REITs, and investors can look forward to better days ahead.

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The information provided is for general information purposes only and is not intended to be personalized investment or financial advice. Motley Fool Singapore contributor Royston Yang does not own shares in any of the companies mentioned. The Motley Fool Singapore has recommended shares of Ascott Residence Trust.