Ascott Residence Trust - CIMB Research 2015-12-09: Stable but lacks growth drivers

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ASCOTT RESIDENCE TRUST A68U.SI 

Ascott Residence Trust - Stable but lacks growth drivers 

• 3Q15 boosted by acquisitions. 
• Key markets including China, Japan, Singapore and Vietnam improved in 3Q15 
• Acquisitions boost topline, but marginal impact on DPU. 
• More perpetual securities could be issued. 
• Maintain Hold as stability is priced in. 

3Q15 boosted by acquisitions 

• In 3Q15, ART’s revenue rose 21% yoy and gross profit widened 13% yoy thanks to acquisitions in 2014 and 2015. 
• RevPAU increased 10% yoy due to stronger performances from the properties in China, Indonesia and Vietnam, as well as the strengthening of the renminbi, US dollar and Vietnamese dong against the Singapore dollar. 

Key markets showed improvement in 3Q15 

• Key markets including China (+2% yoy increase in RevPAU), Japan (+18% yoy), Singapore (+3% yoy) and Vietnam (+7% yoy) more than offset weakness in the UK (-2% yoy) and France (-2% yoy). 
• In China, the ADR of refurbished apartment units at Somerset Xu Hui Shanghai was lifted by c.35% in the latest completed phase of AEI in 2Q15. The remaining phases of AEI are on track for completion in 3Q16. 

Acquisitions boost topline, but marginal impact on DPU 

• Organic growth is likely to be limited to Japan and Australia assets, while ART’s topline will continue to benefit from the full-year contributions of properties acquired in FY14 and additional contributions from the acquisitions of eight properties that were completed in 3Q15. That said, contribution to DPU may be marginal due to the higher financing costs involved in the funding of these acquisitions. 

More perpetual securities could be issued 

• We estimate that ART has debt head room of S$90m, assuming a target gearing limit of 40% vs. current gearing of 38.7%. 
• As management continues to source for acquisitions, we believe that more perpetual securities (which ART utilised last year) could be issued. 
• In terms of locations of potential assets, management could be looking at Europe, Australia and Singapore. 

Maintain Hold as stability is priced in 

• Though we acknowledge that c.45% of ART’s rental income is derived from master leases and management contracts, with minimum guaranteed rents, the stability is somewhat priced in. 
• ART trades at CY15 dividend yield of 7%, the lowest yielding REIT in the hospitality sector (>8%). 
• Maintain Hold with unchanged DDM-based target price (S$1.30).

LOCK Mun Yee CIMB Securities | http://research.itradecimb.com/ 2015-12-09

CIMB Securities SGX Stock Analyst Report HOLD Maintain HOLD 1.30 Same 1.30