Ascendas Hospitality Trust - DBS Research 2016-04-06: Spurns takeover approach

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ASCENDAS HOSPITALITY TRUST Q1P.SI 

Ascendas Hospitality Trust - Spurns takeover approach 

• Rejects takeover offer 
• Potential near term share price weakness on unwinding of positions hoping for takeover 
• Limited re-rating catalyst after recent share price rally 

Potential takeover rejected. 

• We downgrade our call to HOLD from BUY after ASCHT rejected the recent potential takeover offer. 
• With the share price trading at our TP and unwinding of positions by investors who had anticipated a successful takeover, we expect ASCHT’s share price to be under pressure in the near term. 

Australian hotels to sustain performance. 

• 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. 

More sustainable DPU ahead. 

• Beyond the growth from its core Australian properties, 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. 

Valuation: 

Fairly valued. 

• With ASCHT’s share price rallying close to our DCF valuation of S$0.77, we believe the positive outlook has now been priced. Thus, we downgrade our recommendation from BUY to HOLD. 

Key Risks to Our View: 

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 may continue to trade at a discount to book value.

Mervin Song CFA DBS Vickers | http://www.dbsvickers.com/ 2016-04-06

DBS Vickers SGX Stock Analyst Report HOLD Downgrade BUY 0.77 Same 0.77