Ascendas Hospitality Trust - DBS Research 2016-01-06: Under takeover threat

ASCENDAS HOSPITALITY TRUST Q1P.SI

Ascendas Hospitality Trust - Under takeover threat

We reiterate our BUY recommendation and revised S$0.77 TP.
We believe the recent receipt of an unsolicited takeover offer, highlights to investors the inherent value of ACSHT’s portfolio in Australia and Japan, two hospitality markets which have drawn significant investor interest over the past few years.
While the offer price is still unknown, in our view it is likely to be at a premium to ASCHT’s NAV per unit of S$0.72 (as at Sep-15) given upside from renegotiated base rents at its Osaka Namba Washington hotel, continued strength in the Australian and Japanese markets, and from the recent announcement, an option to acquire Aurora Melbourne Central serviced apartments in 2H19.

We believe the Australian portfolio (58% of FY15 NPI), especially Sydney and Melbourne hotels, will underpin ASCHT’s growth outlook. This is due to increasing tourist arrivals into Australia and modest supply of new hotels in Sydney and Melbourne.
We have assumed a 3% increase in FY16F Australian RevPAR compared to 4.2% and 4.5% growth for the Sydney and Melbourne markets respectively in the prior year.

Beyond the growth from its core Australian properties, going forward, ASCHT will also no longer be hampered by costs of unwinding cross-currency swaps (c.12% of FY15 distributable income) which occurred last year.
Combined with an expected improvement in ASCHT’s Japanese portfolio which should benefit from the growth in international visitors on the back of a weaker JPY, we expect a more sustainable DPU going forward after a disappointing 1.5 years.

Rebound in DPU. We believe a recovery in DPU in FY16F after a weak FY15 will boost confidence in ASCHT and act as catalyst to close the discount to our TP of S$0.77.
We lifted our DCF valuation to S$0.77 from S$0.74 as we rolled forward to FY17.

Significant drop in AUD/JPY and demand/supply imbalance.
Should the AUD/JPY drop significantly from current levels and there is excess supply in ASCHT’s respective markets, there will be downside risks to our DPU estimates and ASCHT will continue to trade at a discount to book value.

Mervin Song CFA DBS Vickers | Derek Tan DBS Vickers | http://www.dbsvickers.com/ 2016-01-06

DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 0.77 Up 0.74