Friday, July 12, 2013

Ascott Residence Trust: Expect mute 2013 performance (OCBC)

Ascott Residence Trust:
Fair value S$1.31
add: 12m dividend forecast S$0.083
versus: Current price S$1.300

Cut FV to S$1.31
• Relatively high gearing
• Expect mute 2013 performance
• Reduce FV to S$1.31

The unit price of Ascott Residence Trust (ART) has fallen 13.3% since the high of S$1.50 on 22 May 2013 along with the general market pull-back over concerns about an early tapering of the Fed’s QE program.
In this context, it is worthwhile highlighting that ART’s gearing has increased from 36% to 41% following the completion of the acquisition of three prime serviced residences in China and a portfolio of 11 rental housing properties in Japan for S$287.4m on 28 June 2013. The new gearing level is high compared to hospitality REIT peers, e.g. 28% for CDLHT and 29% for FEHT, and may be viewed less favorably by investors given an environment of higher interest rates. In addition, we expect fairly mute operational performance for ART’s assets in multiple geographies for the rest of the year. Given the increase in risk-free rates, we reduce our FV to S$1.31 from S$1.35 and maintain a HOLD rating on ART.

Gearing at 41%
The unit price of Ascott Residence Trust (ART) has fallen 13.3% since the high of S$1.50 on 22 May 2013 along with the general market pull-back over concerns about an early tapering of the Fed’s QE program. In this context, it is worthwhile highlighting that ART’s gearing has increased from 36% to 41% following the completion of the acquisition of three prime serviced residences in China and a portfolio of 11 rental housing properties in Japan for S$287.4m on 28 June 2013. The new gearing level is high compared to hospitality REIT peers, e.g. 28% for CDLHT and 29% for FEHT, and may be viewed less favorably by investors given an environment of higher interest rates. In our view, any further significant acquisitions would entail some degree of equity funding.

EUR, GBP, CNY appreciation will help SGD-valuation
The EUR, GBP and CNY have risen ~3.7%, ~2.3% and ~3.5% versus the SGD from 31 March 2013 to 30 June 2013. This bodes well for the book valuation of ART’s properties in Europe ex-UK, the UK and China, which account for 22.6%, 14.4% and 14.7% of ART’s total property asset value after the recent acquisitions. However, we also note that the JPY has fallen 2.9% over the same period versus the SGD; Japan accounts for 14.9% of the property portfolio post-acquisition.

Unexciting 2013
To recap, 1Q13 performance for ART missed expectations, reporting a 3% YoY decrease in revenue to S$69.2m. RevPAU fell 10% YoY to S$124 and gross profit fell 9% YoY to S$33.8m. We expect fairly mute operational performance for ART’s assets in multiple geographies for the rest of the year. For example, Singapore (18.2% of property asset value after acquisitions) is facing a mild oversupply situation for hospitality assets. ART's UK serviced residences face a tougher YoY comparable with the absence of the 2012 London Olympics.

Maintain HOLD
Taking into account the increase in the Singapore government 10-year risk-free rates from 1.4% (in early May) to 2.5% recently, we reduce our RNAV-based FV to S$1.31 from S$1.35 and maintain a HOLD rating on ART.


Source/Extract/Excerpts/来源/转贴/摘录: OCBC-Research,
Publish date: 11/07/13

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