First acquisition of the year
- Acquires serviced residences and rental properties in Australia and Japan for S$298.3m
- Increase exposure to the growing Melbourne and Japanese hospitality markets
- Has cash to buy another c.S$100m worth of properties
- Maintain BUY, TP S$1.34
Acquisitions in Australia and Japan.
- Ascott Residence Trust (ART) announced the acquisition of three serviced residences and four rental housing properties in Australia and Japan for S$298m (inclusive of associated debt), on an estimated FY15 EBITDA yield of c.5.5%.
- The deal involves:
- 380-unit Citadines on Bourke Melbourne,
- 40% remaining stakes in Citadines Shinjuku Tokyo and Citadines KarasumaGojo Kyoto, and
- four Osaka rental properties.
- The acquisition will be funded by
- c.S$150m from the S$250m perpetual securities (4.68% yield) issued recently, and
- JPY debt at c.1.5% interest rate.
Broadens presence in growing markets.
- We are positive on the transaction as it provides exposure to the growing Melbourne hospitality market, where RevPAR is projected to increase by 7.3% in 2015.
- We also like the Japan hospitality market exposure which will benefit from rising tourist arrivals (up 45% y-o-y for 5M15).
- Moreover, the rental properties will provide ART with a steady income base.
- While we estimate 1-2% accretion to FY16-17F DPU, as S$100m of proceeds from the perpetuals have not been deployed, we maintain our existing DPU forecasts. Post-acquisition, gearing should remain at c.38%.
- However, treating 50% of the perpetuals as debt (in line with Moody’s), adjusted gearing stands at 42%.
- While acknowledging investor’s concerns over the higher adjusted debt, the use of perpetuals provides investors with greater cashflow visibility as ART is able to lock-in a 2.4% yield spread over a longer period and it avoids dilution from an equity raising.
Maintain BUY.
- Given the c.S$100m investable funds in hand and ART yet to fully benefit from the acquisitions made last year, we believe ART’s earnings remain in an up cycle.
- We reiterate our BUY call and TP of S$1.34.
(Mervin SONG CFA, Derek TAN)
Source: http://www.dbsvickers.com/
