Ascott Residence Trust - DBS Research 2016-07-21: Unrealised potential

Ascott Residence Trust - DBS Research 2016-07-21: Unrealised potential ASCOTT RESIDENCE TRUST A68U.SI 

Ascott Residence Trust - Unrealised potential

  • Underlying 2Q16 DPU of 1.95 Scts below expectations.
  • Lower than expected contribution from Singapore and Belgium.
  • Trimmed FY16-17F DPU by 3-4% to account for revised forex rates.



Diversified portfolio underpins resilience. 

  • We maintain our BUY recommendation on ART with revised TP of S$1.31. 
  • Amid the volatility in the Singapore hospitality market, we believe ART’s diversified portfolio with serviced residences and rental housing across 14 countries in Asia Pacific, Europe and US, provides investors with a more resilient DPU outlook. 
  • ART’s resiliency and cashflow visibility also come from having 40- 50% of its income sourced from master leases and management contracts with minimum guaranteed income.


Value from recent acquisitions/AEIs yet to be fully realised. 

  • ART has announced c.S$1.2bn worth of acquisitions over the last two years, increasing the value of its assets under management (AUM) by one-third to S$5bn. 
  • Combined with completed and ongoing AEIs, ART should progressively realise the benefits from the acquisitions over the next few years.


Divestments to strengthen balance sheet. 

  • ART’s headline gearing of c.41% is slightly elevated and we are mindful of ART’s adjusted gearing (treating 50% of perpetual securities as debt) which stands at 42-44%. However, we understand this is temporary as ART is reviewing its portfolio mix, and looking to divest some of its lower yielding properties. To that end, headline gearing should drop to c.40% in the next quarter upon repayment of bank loans using proceeds from the recent sale of units at Fortune Garden Apartments in Beijing.


Valuation:

  • Despite trimming our FY16-17F DPU by 3-4% to account for the recent depreciation of the GBP and CNY as well as the lower than expected performance in Singapore and Belgium, as we roll forward to FY17, we raise our DCF-based TP to S$1.31 from S$1.28.




Mervin Song CFA DBS Vickers | Derek Tan DBS Vickers | http://www.dbsvickers.com/ 2016-07-21
DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 1.31 Up 1.28


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