Ascott Residence Trust - Still going strong (DBSVickers)

BUY S$1.01

Price Target : S$ 1.34

At a Glance

• 3Q DPU of 2.23 Scts in line (YTD 3Q 77% of estimates)

• 4Q11 performance could moderate sequentially from a seasonally weaker quarter in Europe

• BUY Call maintained, TP S$1.34 based on DCF

Comment on Results

3Q11 DPU of 2.23 Scts in line. Revenues and gross profits grew by 57% and 89% to S$73.0m and S$40.0m respectively, largely fueled by revenues from 28 serviced residences acquired in Oct’10 which offset the loss of income arising from divestments. On a same store basis, topline was S$0.5m (or 1% lower) due to weaker Japan & Vietnam, offset by strong Singapore operations. Portfolio wide RevPAU increased 11% yoy to S$146/night. NPI margins improved to 55% (vs 45% a year ago) mainly due to the inclusion higher-margin master leases and an improvement in RevPAU portfolio wide. Distributable income came in 112% higher yoy at S$26.3m lifted by interest savings from refinancing activities. DPU grew by only 21% to 2.33 S cts on a larger unit base.

4Q11 to moderate sequentially. Portfolio performance has remained fairly consistent and strong since the beginning of 2011 with Singapore and London continuing to enjoy the aftereffect of the group’s refurbishment works supported by strong underlying demand for rooms. Both markets saw RevPAU hikes in excess of 11% and other markets remained relatively stable. Its Japan’s operations also came off its low with 23% qoq improvement in RevPAU. Looking ahead, we understand demand for rooms will continue to remain strong, but performance will moderate slightly in 4Q on a sequential basis as Europe moves into a seasonally weaker quarter (where guests profile mix is largely lower-yielding leisure guests).

Un-locking value at Somerset Grand Cairnhill could be re-rating catalyst, BUY TP S$1.34. We believe a divestment of Somerset Grand Cairnhill Singapore is likely if it is to be redeveloped. This transaction will unlock value for ART, empower the REIT with firepower to make opportunistic acquisitions. ART trades at an attractive 0.8x P/BV and offers FY11-13F yields of >8.5%