Ascott Residence Trust’s Strong H1 FY2022: The Singapore Reopening Stock?

Billy Toh

August 2, 2022

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As mentioned in my previous article entitled, “3 Singapore Stocks Winning From the Travel Boom”, travel is coming back fast.

One of the beneficiaries of this is Ascott Residence Trust (SGX: HMN), or more commonly known as ART.

It is one of the largest hospitality trusts in Asia Pacific with a portfolio comprising of hotels and serviced residences.

This puts the trust in a good position to tap into the recovery of occupancy for its hotels and serviced residences amid the reopening of international borders and resumption of global travel.

I’m going to take a look at ART’s latest H1 FY2022 to see how the earnings have performed during the first half of this year.

1. Strong revenue and earnings growth in the H1 FY2022

Revenue for the H1 FY2022 increased by 45% to S$267.4 million as compared to the H1 FY2021 mainly due to higher revenue from ART’s existing portfolio.

There were also contributions from its expanded portfolio of longer-stay assets comprising student accommodations and rental housing properties, as well as the newly-opened lyf one-north Singapore.

In line with that, gross profit was also up by 44% to S$118.2 million during the same period.

Meanwhile, on a same store basis, revenue and gross profit in the H1 FY2022 increased by 32% and 28%, respectively, as compared to the H1 FY2021.

Source: Ascott Residence Trust’s H1 FY2022’s Financial Results

2. Strongest RevPAU growth ever

During the quarter, ART also achieved its highest quarterly increase in revenue per available unit (RevPAU), notching up 85% growth in the 2Q FY2022 since 2Q FY2020.

On a year-on-year (yoy) basis, ART’s RevPAU jumped 91% to S$124 in the 2Q FY2022.

Source: Ascott Residence Trust’s H1 FY2022’s Financial Results

The strong growth was mainly due to higher average daily rate and occupancy.

The average daily rate increased by around 40% quarter-on-quarter (qoq) while the occupancy rate increased from around 50% in the Q1 FY2022 to 70% in Q2 FY2022.

3. Higher DPS in H1 FY2022

Another positive takeaway from the H1 FY2022’s financial results is the 14% higher dividend per share (DPS) of 2.33 cents, as compared to a year ago.

Excluding one-off items, DPS could have been 120% higher yoy on strong operating performance.

The one-off items include the distribution top-up of S$20 million in the H1 FY2021 and realised exchange gains on repayment of foreign currency loans in H1 FY2021 and H1 FY2022, among other items.

4. Enhancing the resilience portfolio

Source: Ascott Residence Trust’s H1 FY2022’s Financial Results

ART’s stable income sources contributed 68% of its gross profit in the H1 FY2022 while the remaining 32% were income from management contracts from serviced residences and hotels.

The trust currently has seven operating student accommodation properties in the US and three rental housing properties in Japan that were acquired over the last year. They have a strong occupancy rate of over 95%.

In the US, favourable pre-leasing for the next academic year has been observed with three of the properties being fully leased.

The average pre-leasing rate of the student accommodation properties is about 95% with an expected rental growth of about 8% year-on-year.

5. Strong financial position

In terms of ART’s financial position, it has a total of S$1.12 billion in cash and available credit facilities as of 30 June 2022.

This translates into net gearing of 37.5%, which is well below the 50% threshold set by the Monetary Authority of Singapore (MAS).

This gives ART room to pursue its mid-term 25-30% longer-stay accommodation asset allocation.

Currently,79% of its borrowings have been hedged into fixed rates, which helps to mitigate the rising interest rate environment.

Source: Ascott Residence Trust’s H1 FY2022’s Financial Results

6. Positive outlook for the H2 FY2022

It is also worth noting that the management is positive on the robust travel demand and its positive impact on the hospitality sector.

According to management, forward bookings indicate sustained pent-up demand with more corporate and international travel expected to take place.

This will boost ART’s occupancy rate and higher average daily room rates.

They also believe that the H2 FY2022 performance will be on par (or better than) the Q2 FY2022’s operational performance – with US and Europe travel demand continuing to drive the recovery.

Source: Ascott Residence Trust’s H1 FY2022’s Financial Results

Reopening will underpin demand

The upward momentum of demand from both domestic and international travel will continue for the rest of FY2022.

This will benefit hospitality property players, such as ART.

While the rising inflationary pressure will also affect profitability for ART, the ability of ART to raise room rates amid pent-up demand in travel will offset the rising utility and labour costs.

In addition to that, ART’s portfolio mainly comprises of long-stay properties, which will also have lower manpower requirements, resulting in a lower cost structure.

ART also has a low debt funding cost of around 1.0% per annum, which enhances its cash yield.

At its current price, ARY shares have a forward dividend yield of around 4.3%.

Disclaimer: ProsperUs Investment Coach Billy Toh doesn’t own shares of any companies mentioned.

About the Author: Billy Toh

Billy is passionate about the capital market and believes in investing for the long haul. Prior to this, he was an economist at RHB Investment Bank, covering Thailand and Philippines market. He also worked as a financial journalist at The Edge Malaysia and has experience working with an asset management firm. Aside from the capital market, Billy loves a good conversation over a cup of coffee, is a fitness enthusiast and a tech geek.