Updated: 9 Jul 2020
After receiving further information on Master Lease from ART investor relations team, I have updated the top tenant contribution in SREITs Dashboard.
Below is the information from the investor relations team:
"Of the 35 properties under master leases, 22 are with our Sponsor, The Ascott Limited, and the remaining 13 are with third parties. The third parties include franchisees of Quest Apartment Hotels, Sotetsu Hotels Group, a wholly-owned hotel business group of Japanese conglomerate Sotetsu Holdings, Inc., and Singapore’s Park Hotel Group, one of Asia’s leading hospitality groups."
Basic Profile & Key Statistics
Ascott Residence Trust (ART) has recently merged with Ascendas Hospitality Trust (AHT), this merger was completed on 31 December 2019. ART is currently the largest Singapore hospitality trust in terms of market cap.
Lease Profile
Its REVPAU figure is only for properties with management contracts. As mentioned previously, there is no standardization for hospitality trust REVPAU value, thus it makes us unable to have an apple to apple comparison. WALE for master lease is at 7.75 years, which is the median value for Singapore hospitality trust. The highest master lease expiry within 5 years is at 18.2% which falls in 2020. 75.6% of its income is received in SGD and major currencies. Weighted land lease expiry is long at 77.67 years.
Debt Profile
Gearing ratio is healthy at 35.4%. Cost of debt is quite low at 1.8%. Fixed rate debt of 81% is slightly higher than SREITs median while the unsecured debt of 63.6% is lower than SREITs median. Interest cover ratio of 5.1 times is quite healthy. WADE of 3.15 is slightly longer than SREITs median. The highest debt maturity is 31% which falls in 2022.
Diversification Profile
ART currently owned 88 properties across 15 countries which is very well geographical diversified. Its top geographical contribution of 20.9% comes from its properties in New York. The top properties contribution of 8.1% is from Element New York Times Square West. There is no available information on master lease tenants, therefore I have do some assumptions to get the figures. Top tenant of 5.9% is calculated by assuming all Citadines hotels in Frances are leased to a single master lessee. Top 10 tenants' contribution of 13.5% is taken from revenue from all master leases, assuming master lessers are 10 numbers at most. The actual figures for both likely to be lower.
Updated: 09 July 2020
Most of the master leases revenue is from ART sponsor, The Ascott Limited. The updated figure would be 11.5% for top tenant contributions. However, this figure is before including AHT properties into the calculation.
Key Financial Metrics
Property yield is low at 4.8%. Management fee at 13.5% is closed to SREITs median which translates into $7.40 for every dollar paid. Distribution margin is low at 33.6%. 9.3% of its 2019 distribution comes from the partial distribution of divestment gain from Ascott Raffles Place Singapore. In the financial statement, management mentioned it is to replace the loss of income from this divestment. As per my previous post on Case Studies for SREITs with Capital Distribution from Disposal, there is a remaining fund in which management can CHOOSE to distribute this to support its DPU during this downturn.
DPU & NAV Trend
DPU is in downtrend for the past 5 years. However, it shows signs of recovery since 2018. NAV is also in downtrend for the past 5 years and only started to increase slightly in 2019. Given the current COVID situation, DPU would likely take a hit and drop again.
Fundamental Valuation
| Favorable | Less Favorable |
| Weighted Average Land Lease Expiry | Unsecured Debt |
| Cost of Debt | Property Yield |
| Interest Cover Ratio | Distribution Margin |
| Top Geographical Contribution | DPU downtrend |
| Top Property Contribution | NAV downtrend |
| Top 10 Tenants | |
| Well-Spread Master Lease Expiry |
I would prefer REITs to have their DPU derived from operation instead of asset disposal. However, have to say that ART manager is doing a good job for capital recycling.
Relative Valuation
i) Average Dividend Yield
Dividend yield of 7.9% is based on annualized DPU for the past 1 year. Apply annualized DPU of 8.212 cents to an average value of 6.52% will get S$ 1.26.
ii) Average Price/NAV
The average value is at 0.92, apply the latest NAV of S$ 1.25 will get S$ 1.15. NAV of S$ 1.25 is taken from the financial statement on 31 Dec 2019.
Author's Opinion
In the near term, hospitality trusts are expected to underperform because of worldwide restrictions due to COVID. It would likely require more time to recover as compared to other SREITs sector. For valuation:
i) Fundamental Intrinsic Value = (Removed)
ii) Relative Valuation - Dividend Yield = S$ 1.26
iii) Relative Valuation - Price/NAV = S$ 1.15
At the current price of 1.04, it seems it is slightly undervalued in terms of fundamental and undervalued in terms of relative valuation.
*Disclaimer: Materials in this blog are based on my research and opinion which I don't guarantee the accuracy, completeness, and reliability. It should not be taken as financial advice or statement of fact. I shall not be held liable for errors, omissions as well as loss or damage as a result of the use of the material in this blog. Please always do your own due diligence before any decision is made.
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