Ascott Residence Trust posts 14.1% rise in H2 DPS; sets new target to grow longer stay assets

SEEING how strongly the demand for longer stay assets had held up across the pandemic, Ascott Residence Trust (ART) HMN is now intent on growing this segment to 25 to 30 per cent of its total portfolio value in the next 3 to 5 years.

This strategy will help guard the hospitality real estate investment trust (Reit) against future "black swan" events, Beh Siew Kim, chief executive officer of ART's managers, said in a call with reporters and analysts to discuss the Reit's financial results on Friday (Jan 28).

"(Longer stay assets) will be an important part of (ART's) portfolio so that if another black swan event comes, we know that we have this source of income that we will be able to build the base for our unitholders," Beh said.

The new target comes as the CapitaLand subsidiary hit its previous asset allocation target for longer stay assets - 15 to 20 per cent - with a spree of 11 rental housing and student accommodation acquisitions totalling S$780 million since January last year.

Longer stay assets now make up 16 per cent of its portfolio value. The figure stood at 5 per cent as at Dec 31, 2020, before the acquisitions, which were concentrated in the United States and Japan.

Asked if its current capital structure can digest the pivot to longer stay assets, Beh noted ART's gearing of 37.1 per cent, which translates to about S$1.9 billion in debt headroom given the Monetary Authority of Singapore's 50 per cent gearing threshold.

On top of that, ART, which is a stapled group comprising Ascott Real Estate Investment Trust and Ascott Business Trust, is "actively recycling" some of its assets to generate new proceeds through divestments, she said.

So far, the Reit had managed to recycle its assets at higher yields, the Reit managers' head of investment and asset management Gerry Chan stated. Its divestments in 2020 and 2021 generated exit yields of about 2 per cent, and the proceeds were reinvested at earnings before interest, taxes, depreciation, and amortisation (Ebitda) yields of 5 per cent, he said.

For the second-half ended Dec 31, 2021, ART reported a 14.1 per cent increase in its distribution per stapled security (DPS) to 2.27 Singapore cents, from 1.99 cents a year ago.

Its portfolio revenue per available unit (RevPAU) was up 61.2 per cent to S$79 for H2 2021, from S$49 in H2 2020.

In a sign that the pace of reopening has hastened, its RevPAU in the fourth quarter of 2021 alone came in at S$87. This marked the strongest quarter-on-quarter increase in RevPAU since the second quarter of 2020, its managers said in a press statement.

Revenue was up 29.7 per cent to S$209.4 million for H2 2021, from S$161.4 million a year ago.

Its managers attributed the growth mainly to higher revenue of S$45.4 million from its existing portfolio and additional contributions of S$11.7 million from the acquisition of 6 student accommodation assets in the US and 3 rental housing properties in Japan.

They noted, however, that these gains were partially offset by a decrease in revenue of S$9.1 million from divestments.

Gross profit was also up 49.5 per cent to S$91.2 million for H2 2021, from S$61 million a year ago.

Distribution income grew 19.1 per cent on the year to S$73.5 million for the half year, from S$61.7 million. This included a one-off distribution of divestment gain of S$25 million to share divestment gains with stapled securityholders, replace income loss from divested assets, and mitigate the impact of Covid-19 on distributions.

Meanwhile, for the full year ended Dec 31, 2021, DPS was higher at 4.32 cents, versus 3.03 cents a year ago, as RevPAU rose 16.9 per cent to S$69, from S$59 in FY2020.

Stressing that the full-year DPS increase was "very commendable" given the Covid-19 situation, Beh said: "For a hospitality Reit, for us to distribute 4 (over) cents despite the lack of international travel in many parts of the world, it shows that we have done well and making sure that assets continue to deliver returns to our investors."

"It is a testament to how we have recycled well, invested well, and realised gains that can be distributed to our unitholders during a period like this," she added, stating that the Reit still has about S$300 million in undistributed capital gains.

Gross revenue for FY2021 was 6.6 per cent higher at S$394.4 million, while gross profit rose 15.8 per cent to S$173.3 million for the full year.

Total distribution income in FY2021 rose by 45.7 per cent to S$137.3 million, which included the termination fee income received upon terminating the sale of Citadines Xinghai Suzhou and Citadines Zhuankou Wuhan.

The full-year distribution income of S$137.3 million also comprised realised exchange gains on the receipt of the divestment proceeds, realised exchange gains from the repayment of foreign currency bank loans with the divestment proceeds, on top of the one-off distribution of divestment gain of S$45 million.

ART will pay a distribution of 1.726 cents per stapled security for the Sep 20 to Dec 31, 2021 period come Mar 1, after books close on Feb 9.

Stapled securities of ART were trading down 1 per cent at S$1.02 as at 3.23 pm on Friday.