UOB Kay Hian Research 2015-06-26 (REIT): Downgrade ART to HOLD, CCT, Starhill, CDREIT and Sabana are the Top Picks

SGinvestors.io

Creating Yield Accretion

• ART’s proposed acquisition of a S$298m portfolio in Australia and Japan looks to be yield accretive through the creative use of perps and debt instruments.
• We downgrade ART to HOLD with an unchanged target price of S$1.42 as the 2.9% accretion in DPU is offset by the raised risk profile from the relatively higher debt levels after factoring in perpetual securities (20bp increase in required rate of return). 
• Separately, Frasers Hospitality Trust’s private placement on the back of its Sydney acquisition was largely anticipated. Maintain MARKET WEIGHT. 

WHAT’S NEW 

• ART proposed acquisitions. Ascott Residence Trust (ART) announced the proposed acquisition of seven assets, comprising serviced residences and rental housing properties in Australia and Japan for a total of S$298.3m. ART will hold an EGM on 24 July. 



• The three serviced residences are: 
  1. Citadines on Bourke Melbourne (380 units, acquisition cost: S$167.6m). 
  2. Citadines Shinjuko Kyoto (124 units, acquisition cost: S$9.7m). 
  3. Citadines Shinjuku Tokyo (160 units, acquisition cost: S$20.5m). 
• The remaining four rental housing properties (868 units) are to be acquired for S$48.8m. 

• Frasers Hospitality Trust (FHT) plans to raise S$121.5-123.0m via a private placement of shares at S$0.81-0.82 each to partially fund its Sofitel Wentworth acquisition. 

ACTION 

• Ascott Residence Trust’s (ART) proposed acquisition of a S$298m portfolio comprising serviced residences and rental housing properties in Australia and Japan looks to be yield accretive through the creative use of perps and debt instruments. 
• We downgrade ART to HOLD with an unchanged target price of S$1.42 as the 2.9% accretion in DPU is offset by the raised risk profile from the relatively higher debt levels after factoring for the perpetual securities (20bp increase in required rate of return). Entry price is S$1.20. 
• Separately, FHT’s private placement on the back of its Sydney acquisition was largely anticipated. 
• Our key REIT picks are CCT, Starhill, CDREIT and Sabana.

PEER COMPARISON

(Vikrant Pandey, Derek Chang)



Source: http://research.uobkayhian.com/