Ascott Residence Trust - CIMB Research 2016-04-15: Propelled by acquisitions

ASCOTT RESIDENCE TRUST A68U.SI

Ascott Residence Trust - Propelled by acquisitions

1Q16 DPU of 1.75 Scts (-1% yoy) was largely in line with our expectation and consensus at 22% of our full-year forecast.
Strong operating performance in several markets drove portfolio RevPAU up by 10% yoy to S$125. Advanced distribution of 1.585 Scts declared.
We believe that ART is on track to achieve its target AUM of S$6bn by 2017.

Maintain Hold, reduce target price to S$1.14. ART remains our preferred pick in the hospitality sub-segment.

Propelled by the S$609m of acquisitions from 2015 (six properties across Australia, Japan and the US as well as remaining stakes in two existing properties in Japan), ART’s 1Q16 revenue expanded 17% yoy to S$105.5m.
Strong operating performance in several markets drove portfolio RevPAU by 10% yoy to S$125. Excluding the acquisitions, RevPAU increased by 1% yoy. Gross profits increased by 13% (+4% yoy on a same-store basis).
Distributable income notched up 1% yoy to S$27.3m.

In local currencies, China’s RevPAU improved 6% yoy as it saw more bookings from project groups, mainly in first-tier cities.
Japan’s RevPAU rose 4% yoy due to stronger demand from corporate and leisure travellers.
Singapore’s RevPAU was fairly stable (+1% yoy).
Australia’s RevPAU climbed up 10% yoy due to the newly acquired Citadines on Bourke Melbourne, which has a higher ADR.
Spain’s RevPAU grew 9% yoy, thanks to increased demand from leisure travellers at Citadines Ramblas Barcelona.

ART invested S$50m in 2015 to refurbish several properties. The ongoing refurbishment at Citadines Barbican London, Ascott Makati and Somerset Xu Hu Shanghai are on track for completion by 2Q16.
In terms of capital management, ART raised an eight-year S$-bond and swapped it into a euro liability at 2.15% p.a., bringing its all-in blended borrowing costs down to 2.5% p.a.
Asset leverage stands at 38.9% which suggests that acquisitions would be accompanied by equity fund raising.

ART makes distributions to unitholders on a semi-annual basis (end-Jun and end-Dec).
Following the equity placement on 14 Mar (94.8m new shares at S$1.055), it has declared an advanced distribution of 1.585 Scts for 1 Jan 2016 to 22 Mar 2016, which will be paid on 27 Apr 2016.
The next distribution will be comprised of distribution income from 23 Mar 2016 to 30 Jun 2016.

We reduce our DDM-based target price as we factor in the equity placement (from the recent NY acquisition) and align our discount rate with the sector.
Due to limited upside, we maintain a Hold.
We adjust FY17-18 DPU by +2%/-2%. If investors want exposure to the hospitality sector, our preferred pick remains ART.
We like the group for its diversified global portfolio and stable income (c.40% of gross profit is contributed by master leases).
Also, we believe it is on track to achieve its targeted AUM of S$6bn (currently S$5bn) by 2017.

LOCK Mun Yee CIMB Securities | YEO Zhi Bin CIMB Securities | http://research.itradecimb.com/ 2016-04-15

CIMB Securities SGX Stock Analyst Report HOLD Maintain HOLD 1.14 Down 1.19