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.

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%).

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.

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.

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