Ascott Residence Trust’s (Ascott Reit) 2Q 2019 distribution per unit (DPU) grew 8% to 1.98 cents as compared to 2Q 2018. Unitholders’ distribution for the quarter also increased 8% to S$43.1 million, which included a realised exchange gain of S$3.1 million arising from the repayment of foreign currency bank loans with the divestment proceeds from Ascott Raffles Place Singapore.
Revenue for 2Q 2019 increased 2% to S$132.5 million, which was mainly attributed to additional revenue from the acquisition of Citadines Connect Sydney Airport in May 2019 and higher revenue from the existing properties in the Philippines, United Kingdom and Japan. Gross profit for 2Q 2019 climbed 7% from 2Q 2018 to S$67.6 million due to higher revenue and adoption of accounting standard FRS 116 Leases1 with effect from 1 January 2019. On a same-store basis2 excluding FRS 116 adjustments, gross profit increased by S$0.2 million.
Mr Bob Tan, Ascott Residence Trust Management Limited’s (ARTML) Chairman, said: “Ascott Reit’s DPU continued to grow steadily in the second quarter, affirming our proactive efforts to enhance the quality of our portfolio, and Ascott Reit’s strength as the most geographically diversified REIT listed in Singapore. In the first half of this year, we divested Ascott Raffles Place Singapore at 64% above book value and acquired Citadines Connect Sydney Airport, a prime business hotel. We will continue to focus on delivering stable returns to unitholders and maintain a balance of stable and growth income.”
In 2Q 2019, Ascott Reit’s diversified portfolio spans 14 countries, with Asia Pacific contributing 49% to gross profit and 51% is from Europe and the United States of America. Approximately 40% of the gross profit for 2Q 2019 was contributed by stable income from properties on master leases and properties on management contracts with minimum guaranteed income, while the remaining was from properties on management contracts.
Mr Tan added: “With our recent proposed combination of Ascott Reit and Ascendas Hospitality Trust (A-HTRUST), we expect higher stable income for the combined entity at 46%3 of gross profit. Ascott Reit’s DPU is expected to grow 2.5% on a FY 2018 pro forma basis through the combination. With a debt headroom of about S$1 billion4 for the combined entity, we will have the financial capacity to pursue more accretive acquisitions and undertake development or conversion projects to enhance portfolio value. We will look at opportunities from both our sponsor The Ascott Limited and third parties.”
In 2Q 2019, gross profit for the Philippines rose 36%5 due to higher revenue from the refurbished apartments at Ascott Makati and lower operating costs. Both Spain and Belgium enjoyed stronger leisure demand, with gross profit increasing 29%6 and 22%6 respectively. Gross profit for the United Kingdom grew 12%6 due to higher demand from corporate and leisure travellers. Gross profit for Vietnam increased 7%6 mainly due to stronger demand from project groups and higher commercial rent.
Ms Beh Siew Kim, ARTML’s Chief Executive Officer, said: “As part of our ongoing asset enhancement initiatives to enrich customer experience, we have completed the refurbishment of Ascott Makati, Somerset Grand Citra Jakarta and Element New York Times Square West and expect to see an uplift in average daily rates. Excavation and piling works have begun for lyf one-north Singapore, our maiden development project and coliving property, and it is on track to open in 2021.”
Ascott Reit continued with its disciplined and proactive capital management strategy, with 88% of Ascott Reit’s borrowings on fixed interest rates. As at 30 June 2019, Ascott Reit’s gearing was 32.8%, way below the 45% gearing threshold set by the Monetary Authority of Singapore. Its effective interest costs remained low at 2.1%.
Ascott Reit announced on 3 July 2019 the proposed combination of Ascott Reit and A-HTRUST to form Asia Pacific’s largest hospitality trust and the world’s eighth largest with an asset value of S$7.6 billion7.
Ms Beh said: “The proposed combination of Ascott Reit and A-HTRUST will strengthen Ascott Reit’s presence in Asia Pacific where demand for business and leisure travel remains robust. Asia Pacific is expected to contribute 68% of the combined entity’s gross profit. We are heartened by the recent show of support from key unitholders for this transaction8. We will continue to engage unitholders on the merits of this yield-accretive transaction leading up to the Extraordinary General Meetings later in the year.”
International tourist arrivals grew 4% in the first three months this year, with Asia Pacific being one of the bright spots that registered a 6% increase9. Asia Pacific continues to see strong demand for lodging where the demand for business and leisure travel is underpinned by economic growth and an expanding middle-class. The International Monetary Fund expects the global economy to grow 3.2% in 2019 and 3.5% in 202010. The US Federal Reserve is keeping its policy interest rate at between 2.25% and 2.5%, with an interest rate reduction expected later this month11.
Summary of Results
a. FRS 116 Leases is effective from 1 January 2019. The adoption of this standard has changed the nature of expenses for Ascott Reit’s portfolio of operating leases and replaced the straight-line operating lease expense to change in fair value for right-of-use assets and interest expense on lease liabilities.
b. On a same-store basis and excluding the FRS 116 adjustments, gross profit increased by S$0.2 million.
c. Unitholders’ distribution for 2Q 2019 included a realised exchange gain of S$3.1 million arising from the repayment of foreign currency bank loans with the divestment proceeds from Ascott Raffles Place Singapore.
d. On a same-store basis and excluding the FRS 116 adjustments, gross profit increased by S$0.8 million.
e. Unitholders’ distribution for YTD June 2019 included a realised exchange gain of S$5.7 million arising from the repayment of foreign currency bank loans with the divestment proceeds from Ascott Raffles Place Singapore. Unitholders’ distribution for YTD June 2018 included a realised exchange gain of S$1.6 million arising from repayment of foreign currency bank loans with proceeds from the divestment of the two China properties.
Distribution
Ascott Reit’s distributions are made on a semi-annual basis, with the amount calculated as at 30 June and 31 December each year.
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