Ascott Residence Trust’s (Ascott Reit) distribution per unit (DPU) for 1Q 2019 grew 7% to 1.45 cents compared with 1Q 2018. Unitholders’ distribution for 1Q 2019 rose 8% to S$31.5 million. Gross profit increased 2% to S$49.5 million1, while revenue climbed 3% to S$115.9 million. Revenue Per Available Unit (RevPAU) for 1Q 2019 was S$133, a year-on-year increase of 3% from 1Q 2018.
Unitholders’ distribution for 1Q 2019 was higher due to better operating performance, lower financing costs and higher one-off realised exchange gain of S$1.0 million. The realised exchange gain of S$2.6 million in 1Q 2019 arose from the repayment of foreign currency bank loans with the 15% deposit received for the divestment of Ascott Raffles Place Singapore announced in January 2019. The divestment is expected to be completed in May 2019.
Mr Bob Tan, Ascott Residence Trust Management Limited’s (ARTML) Chairman, said: “Ascott Reit continued to deliver stable returns in the first quarter this year due to strong operating performance, with higher contributions particularly from Singapore and the United Kingdom. Our debt headroom of close to S$900 million2 will give us the financial flexibility to pursue accretive acquisitions from our sponsor The Ascott Limited and third parties.”
“As part of our disciplined capital recycling approach, we recently announced our acquisition of Citadines Connect Sydney Airport3, a prime freehold business hotel, for A$60.6 million with an expected yield of over 6%. This was right after our divestment of Ascott Raffles Place Singapore for S$353.3 million at an exit yield of about 2%. We will continue to proactively reconstitute our portfolio to strengthen Ascott Reit’s position as the largest and most geographically diversified hospitality REIT in Singapore.”
Ascott Reit maintains a balanced portfolio that provides stable and growth income. More than half of Ascott Reit’s gross profit is contributed by growth income through management contracts, while the remaining is contributed by stable income from master leases and properties on management contracts with minimum guaranteed income. Ascott Reit’s diversified portfolio spans 14 countries, with approximately 60% in Asia Pacific as well as 40% in Europe and the U.S.
In 1Q 2019, Singapore and the United Kingdom remain among the top contributing markets with gross profit increasing 35%4 and 20%4 respectively due to higher market demand. There was also stronger leisure demand for Ascott Reit’s serviced residences in Tokyo and Melbourne.
Ms Beh Siew Kim, ARTML’s Chief Executive Officer, said: “We are committed to driving the operating performance of our properties and enriching customer experiences through active asset enhancement initiatives. With the higher occupancy at Ascott Makati and higher rates from its renovated apartments, revenue for our Philippines market increased 24%4. We expect higher average daily rates for Somerset Grand Citra Jakarta and Element New York Times Square West when their refurbishments are completed in mid-2019.”
Ascott Reit continues to adopt a prudent approach towards capital management, with 80% of its borrowings on fixed interest rates to hedge against potential rising interest rates. It also maintained a healthy gearing of 35.7%, well below the 45% gearing threshold set by the Monetary Authority of Singapore.
The International Monetary Fund has forecasted a global economic growth of 3.3% in 20195. Interest rates are expected to remain stable in 2019, given the dovish stance undertaken by the U.S. Federal Reserve6.
International tourist arrivals rose 6% in 2018 to 1.4 billion, two years ahead of the World Tourism Organisation’s forecast7. International tourist arrivals are also expected to increase by 4% this year8. While potential headwinds such as rising operating costs and competition from new supply remain, international travel continues to be sustained by the rising middle-class demographics and better air connectivity.
(1) FRS 116 Leases is effective from 1 January 2019. The adoption of this standard changed the nature of expense for Ascott Reit’s portfolio of operating leases and replaced the straightline operating lease expense to change in fair value for right-of-use assets and interest expense on lease liabilities.
(2) Unitholders’ distribution for 1Q 2019 included a realised exchange gain of S$2.6 million arising from the repayment of foreign currency bank loans with the 15% deposit received for the divestment of Ascott Raffles Place Singapore announced in January 2019.
(3) Unitholders’ distribution for 1Q 2018 included a realised exchange gain of S$1.6 million arising from the receipt of proceeds from the divestment of Citadines Biyun Shanghai and Citadines Gaoxin Xi’an in China as well as the repayment of foreign currency bank loans with the divestment proceeds.
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