Ascott Residence Trust (ART SP) - DBS Research 2017-07-04: Portfolio Reconstitution

Ascott Residence Trust (ART SP) - DBS Vickers 2017-07-04: Portfolio Reconstitution ASCOTT RESIDENCE TRUST A68U.SI

Ascott Residence Trust (ART SP) - Portfolio Reconstitution

  • Ascott Residence Trust (ART) sells two Chinese properties for RMB980m, 69% above book value.
  • Gearing to settle around 35-36%.
  • Disposal consistent with strategy to sell low yielding properties to be recycled into higher yielding assets.

What’s New

  • Ascott Residence Trust (ART) announced that it has sold two properties in China - Citadines Biyun Shanghai and Citadines Gaoxin Xian - for an aggregate consideration of RMB980m (c.S$198m), which is 69% above the valuation of the two properties as at 31 December 2016.
  • We understand the exit yield is substantially below the initial acquisition yield of 4.5-5.0%.

Financial impact

  • ART expects to book a net gain of c.RMB239m (S$48.3m) post the disposal of the two properties.
  • Proforma FY16 DPU (which excludes the impact of the recent rights issue) is expected to fall to 8.23 Scts from 8.27 Scts.
  • Gearing subject to the final funding structure for the proposed acquisition of DoubleTree by Hilton, and Hotel New York Times Square South; gearing should settle at around 35-36%.

Our Take

  • We are supportive of ART’s plans to sell its lower yielding properties and recycling the proceeds into higher yielding assets such as the DoubleTree property in New York at a proforma net property income (NPI) yield of 6%. These disposals are consistent with ART’s strategy of selling properties with limited growth potential or at attractive valuations.
  • For now, we maintain our BUY call with Target Price of S$1.16 pending ART’s upcoming 2Q17 results.

Melvin SONG CFA DBS Vickers | Derek TAN DBS Vickers | 2017-07-04
DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 1.160 Same 1.160