Ascott Residence Trust - UOB Kay Hian 2016-01-27: 4Q15 In Line With Expectations

Ascott Residence Trust - UOB Kay Hian 2016-01-27: 4Q15 In Line With Expectations SUNTEC REIT SUNTEC REAL ESTATE INV TRUST T82U.SI 

Ascott Residence Trust -  4Q15: In Line With Expectations 

  • Results in line with expectations; Maintain BUY with a unchanged target price of S$1.39 based on two-stage dividend discount model (required rate of return: 7.9% and terminal growth rate: 1.6%). 
  • ART reported 4Q15 DPU of 2.07 S cents (-4% yoy). Adjusting for 4Q14’s exceptional items, 4Q15 DPU of 2.07 S cents grew 18% yoy as gross revenue and gross profit saw increases of 26% and 24% yoy respectively mainly due to acquisitions in 2014 and 2015. 
  • The results were in line with expectations, coming in at 98.3% of full-year estimates. 

• Operational highlights. 

  • 4Q15 saw RevPAU increase 17% yoy to S$145 underpinned by stronger performance in China, Indonesia and Vietnam. 
  • On a same-store basis (excluding acquisitions) RevPAU increased 2% yoy to S$126. Gearing slipped 0.7 ppt qoq to reach 39.3% in the quarter. 
  • Borrowing costs remained stable at 2.8% (3Q15: 2.8%). 

• Well-performing geographies include Vietnam and Japan, recording RevPau growth of 18% and 8% yoy respectively. 

  • Japan saw increased demand on the leisure front, while Vietnam’s uplift was mainly attributable to refurbishment done at Somerset Ho Chi Minh in addition to stronger corporate demand. 

• Sector outlook. 

  • Management was optimistic on the RevPAU in the coming year, underpinned by Japan, Australia, the UK, Vietnam and new market USA. 
  • In Japan, serviced residences should see RevPAU growth of 5-10% in the coming year, though rental housing growth is expected to remain flat. In Australia, RevPAU growth of up to 5% is expected, fuelled by newly acquired Citadines on Bourke Melbourne. 
  • In the UK, the overhang from the Paris attacks should fade, and RevPAU growth of up to 5% should be fuelled by refurbished Project Barbican (expected completion in 2Q16). 
  • Growth from America will hinge on the newly acquired asset, ART’s sole property in the U.S. 
  • Management was less sanguine on the Singapore market, guiding for flattish RevPAU, citing supply-side pressure, with approximately 4,000 hotel rooms due to hit the market this year. 
  • In China (top market with 17% of total AUM), management expects overall growth to be muted (flat to 5% growth) as pressure accruing from Tier 2 cities offsets growth seen in the Tier 1 cities. 

• New/ongoing AEI in China, the Philippines, and London. 

  • The newly-announced S$1.5m AEI at Somerset Millennium Makati will take place over 2Q-4Q16. The phased AEI (est cost of S$8.3m) at Citadines Barbican London will commence in 1Q16 with completion slated for 2Q16. 
  • Both Phase 2D of Somerset Xu Hui Shanghai and Ascott Makati’s ongoing refurbishment are slated for completion come 2Q16.

Vikrant Pandey UOB Kay Hian | Derek Chang UOB Kay Hian | http://research.uobkayhian.com/ 2016-01-27
UOB Kay Hian SGX Stock Analyst Report BUY Maintain BUY 1.39 Same 1.39