Thursday, March 31, 2016

A New Stock Purchase - Ascott Residence Trust

Just a few days ago, I made a new stock purchase into Ascott Residence Trust at a price of $1.065. Adding this stock into my portfolio, I would have 16 stocks now. Previously I bought on Saizen REIT which was already being acquired and most of the cash has been given out. I wrote that I was seeking to find another company which can potentially replace the lost income from Saizen REIT. Ascott REIT was what I found.



About Ascott Residence Trust - Profits and Assets

Ascott Residence Trust was established with the objective of investing primarily in real estate and real estate-related assets which are income-producing and which are used or predominantly used, as serviced residences, rental housing properties and other hospitality assets. Saizen REIT was a company which has rental properties while Ascott REIT has serviced residences. Although not really the same, there are some similarities shared too. I believe this is also a stable income producing asset which is my objective for investing in it.

Unlike Saizen which has all its properties in Japan, Ascott REIT has its properties in 14 different countries. To me, this is quite a diversified portfolio. It has a total of 89 properties currently. Most of its gross profit is generated from Japan at $34.2 Million followed by France at $32.4 Million and UK at $26.7 Million. In terms of assets in its portfolio, China is the largest at 17% followed by Japan at 15.8% and Singapore at 13.3%.

From the information on its gross profit and total assets breakdown, I would be able to see how its profit or asset value would be affected. I like the fact that its profit from Japan contributes to a big part of its portfolio as rental yield in Japan is certainly going up as in my analysis for Saizen. The risks is we have seen that the QE being done in Japan has not worked out as well as what we thought it would be but the government relentless pursuit to revive back inflation in its economy is certainly sending asset and rental prices up. This is a good thing for Ascott. Another risk is 17% of its total assets are from China. If China would to have a property market correction, it would definitely affect the asset value of its portfolio when revaluation comes.

In its latest financial result, portfolio value was up by 15%  mainly due to properties acquired in 2H 2015 as well as higher valuation of properties in Japan, France and United Kingdom. However, portfolio value from properties in Australia went down. The NAV increased from $1.37 to $1.41 currently. The latest share price is trading at around $1.06. This represents a discount of 24.8% to its NAV. Distribution per unit (DPU) was 7.99 cents in 2015. Taking the current stock price of $1.06, this represents a dividend yield of about 7.5% which I think is quite attractive.


Stability of Income?

If we're investing for income, we have to ask ourselves will the DPU be stable? What will affect the profit and thus the DPU given out? Occupancy rates, currency movements and rental rates are some of the factors which will affect their DPU.

For occupancy rates, Ascott REIT focuses on long stay segments to provide stability in income. 23% of its properties are rented out for more than 12 months contract with the average length of stay about 4 months. In addition, 46% of the Group’s gross profit for FY 2015 is contributed by master leases and management contracts with minimum guaranteed income.

For currency movement,  Ascott REIT entered into foreign currency forward contracts to hedge distribution income derived in EUR, GBP and JPY. On a portfolio basis, 40% of FY 2015 foreign currency distribution income had been hedged. This is a good strategy as most of its profits comes from Japan, UK and France. All 3 different currencies from these countries are hedged. However, DPU will still be affected such as the AUD and MYR declining substantially against the SGD in FY 2015.


Debt Profile & Valuations

On its debt profile, gearing is at 39.3% with 79% of its loans on fixed rates as at 31 December 2015. Total debt is at $1815 Million while cash and cash equivalents are at 220.5 Million. 14% of its loans will mature in 2016 where they will refinance it into fixed rates loans. Another 10% will mature in 2017 and 12% in 2018. Weighted Average Debt to Maturity is 4.6 Years.

To me, I believe the DPU should remain stable at least for the next few years. With most of its profits coming from Japan where I believe rental rates will continue to be stable and even pick up, this will be good for the REIT as a whole. Occupancy for rental housing in Japan is 98% in 4Q 2015. Rental housing in Japan is in demand due to the high cost of owning a home in Japan. 

At the current valuation, this represents a discount to NAV where dividend yield is fairly attractive at 7.5%. I am primarily invested in this for the yield for income. Investing into it now doesn't mean the price would not go lower. It only means I think the company is at a good value now and if it were to go down further, I will definitely accumulate more.

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12 comments:

  1. gearing seems pretty high at 39%, be prepared for rights issue or placement in near future hehe

    ReplyDelete
    Replies
    1. Hi Felix,

      Yes they are known for rights issue or private placements. They already did that a few times before. I'm fully prepared for that.

      Delete
  2. do you have an analysis on Ascendas Hospitality Trust? Thanks

    ReplyDelete
    Replies
    1. Hi SAFE,

      I haven't wrote an analysis on AHT. But I have invested in it since last year. There are interested parties who want to acquire the company so it should be confirmed later part of this year.

      Delete
  3. The distribution yield after new share placement and acquisition is only 6.8%, in their acquisition announcement.

    ReplyDelete
    Replies
    1. Hi Henry,

      Where did you see the announcement? 6.8% is still rather attractive.

      Delete
  4. Do you hold Croesus reit trust and do you have any analysis on this stock?

    ReplyDelete
    Replies
    1. Hi ken,

      Yes i do hold croesus and have written a few times on this company. You can search my blog for the various posts by using the search function on the right side bar of my blog.

      Delete
  5. Right issue is now announced. any comments?

    ReplyDelete
    Replies
    1. Hi Timmy,

      I've already sold ascott reit after the announcement of the brexit last year. Wouldn't be buying into this anytime soon.

      Delete
  6. Hi, do u know what will happen if i don't sell my nil paid rights and let it expire? Will the nil paid rights be automatically sold and credited the $$ to me after it expires?

    ReplyDelete
    Replies
    1. Hi,

      It won't be automatically sold

      Delete