Ascott Residence Trust - Singapore/London power ahead (DBSVickers)

BUY S$1.205 STI : 3,182.95

Price Target : 12-Month S$ 1.42 (Prev S$ 1.38)

Reason for Report : Earnings revisiion

Potential Catalyst: Acquisitions

DBSV vs Consensus: Higher RevPAU expecations

• 2Q11 DPU of 2.33 Scts above street and our estimates

• Singapore and London continue to perform, lower than expected interest costs lifts net margin

• BUY, TP revised to S$1.42 and offers 24% total return

2Q11 DPU of 2.33 Scts above estimates. Revenues and gross profits were higher by 65% and 98% respectively to S$73.1m and S$41.2m. This was largely due to the contribution from its acquisition of 28 serviced residences in Oct’10, which more than offset the divestment of Ascott Beijing and Country Woods Jakarta. Singapore operations came in stronger than expected with portfolio wide RevPAU increased 7% y-o-y to S$147/night. Distributable income was 127% higher at S$26.3m due to interest savings from refinancing activities (3.2% vs 3.5% forecast), translating to a DPU of 2.33 Scts. The group also wrote up its book value by S$82.8m, resulting in a 4% hike in NAV /share to S$1.33.

Singapore and London power on while Japan was weak from Earthquake aftermath effects. The group’s refurbishment works is bearing fruit- judging by the performance of its Singapore properties, which saw RevPAU hikes in excess of 30% for its refurbished units in Cairnhill and Liang Court. Its London operations also posted a 15% increase in RevPAU benefiting from renovation works and should continue to perform well after the completion of its refurbishment of Trafalgar Square property. Looking ahead, Japan is expected to remain weak post the Earthquake but their rental-housing portfolio, which has proven to remain resilient, should limit the impact.

BUY, TP upped to S$1.42/share. Our forward DPU estimates are raised c6.0% from (i) higher RevPAU assumptions in London and Singapore; and (ii) lower than expected interest costs achieved. Trading at an attractive forward yield of 7.2-7.3%, >100bps above the S-REIT sector peers. Re-rating catalysts will hinge on higher than expected operational performance and/or acquisitions.