Ascott Residence Trust - CIMB Research 2016-01-26: 4Q15 ~ roused from the city that never sleeps

Ascott Residence Trust - CIMB Research 2016-01-26: 4Q15 ~ roused from the city that never sleeps ASCOTT RESIDENCE TRUST A68U.SI 

Ascott Residence Trust 4Q15: roused from the city that never sleeps 

  • 4QFY15’s DPU of 2.07Scts (-4% yoy) was broadly in line with our expectations at 26% of our full-year forecast. FY15’s DPU of 7.99Scts (-3% yoy) made up 96%. 
  • Thanks to New York, 4Q15’s RevPau grew 17% yoy to S$145. 
  • Portfolio value was up by 15% from end-Jun 15 due to compression of 10-15bps in cap rates for its Japanese properties. 
  • Sanguine that demand in tier-1 cities in China could offset pressures in tier-2 cities. 
  • Maintain Hold with a lower DDM-based target price of S$1.19. 

■ 4Q15: roused from the city that never sleeps 

  • Boosted by the first full-quarter of contributions from Element New York Times Square West (the trust’s first US acquisition), as well as five other properties acquired through the year, 4Q15’s gross revenue grew 26% yoy and 5% qoq to S$119m. 
  • 4Q15’s gross profit margin slipped 1.1% pts qoq to 47.7% due to refurbishment at Ascott Makati and fewer rooms at Somerset Millennium (both in the Philippines). 
  • We note that 4Q’s DPU growth would have been 18% yoy with the removal of one-off items in 4Q14. 

■ AEI uplifted ADR of renovated properties by 27-35% 

  • Completed AEIs in various properties in China and Vietnam lifted ADR of the renovated apartment units by 27-35%. Thanks to New York, overall RevPau grew 17% yoy to S$145 in 4Q15. 
  • On a same store basis, RevPau growth would have been 3% yoy. 

■ Portfolio value up by 15% vs. end-Jun 15 

  • At end-15, ART’s portfolio value stood at S$4,374m. The S$53m increase in portfolio value was due mainly to compression of 10-15bps in cap rates for the trust’s Japanese properties. Otherwise, cap rates of the other properties were substantially the same. 

■ China: a tale of two cities… 

  • 4Q15’s RevPau in China rose 2% yoy on higher demand at Somerset Xu Hui Shanghai. 
  • For FY16, we view that RevPau growth could be flattish to single-digit, depending on whether the strength in tier-1 cities offsets the weakness in tier-2 cities. 
  • Meanwhile, with incoming supply pressure, we deem that RevPau in Singapore could be flattish in FY16. 
  • Singapore RevPau fell 8% yoy in 4Q due to a drop in occupancy for Liang Court. That said, management is working hard to push Singapore occupancy back up to 85%. 

■ … brighter outlook elsewhere 

  • We expect Japan to remain steady, after RevPau increased 8% yoy in 4Q. 
  • Similarly, Vietnam’s RevPau increased 8% yoy; we expect the trend to sustain on the back of a buoyant economy. 
  • For the UK, we are hopeful of a recovery in RevPau in FY16. 
  • In Australia, corporate demand in Melbourne could be offset by weakness in Perth. 

■ Maintain Hold with a lower target price of S$1.19 

  • We lower our FY16-17F DPU by 2-5.5% on lower RevPau and gross margin assumptions. This, and a higher equity discount rate (in line with the sector realignment), leads to a lower DDM-based target price. 
  • Maintain Hold on ART.

LOCK Mun Yee CIMB Securities | YEO Zhi Bin CIMB Securities | 2016-01-26
CIMB Securities SGX Stock Analyst Report HOLD Maintain HOLD 1.19 Down 1.30