STI : 3,205.24
Price Target : 12-Month S$ 1.42
Driven by acquisitions
• 3Q13 results slightly ahead
• Refurbishments completing in subsequent quarters to drive organic growth
• Divestment of Somerset Grand Fortune Garden Beijing is positive
• BUY, TP S$1.42
3Q13 DPU of 2.37 Scts slightly ahead. Ascott Residence Trust (Ascott REIT) reported revenues and gross profit of S$86.1m (+11% y-o-y) and S$44.8m (+10%) respectively. Performance was largely driven by an expanded portfolio from the acquisitions 17 properties in China, Germany, Japan and Singapore, which more than offset the impact of the divestment of Somerset Grand Cairnhill Singapore. Portfolio RevPAU was 10% weaker y-o-y to S$133/night. Translation impact on gross profits remains manageable at +0.7% Distributable income came in 17% higher y-o-y at S$30.0m, translating to a DPU of 2.37 Scts ( + 6% y-o-y due to an expanded share base).
Refurbishments to enhance portfolio performance. Ascott REIT continues to take an active management role in its refurbishment programs across the portfolio, to refresh their products and raise room rates to optimise returns. Completed programs at Citadines Toison d’Or Brussels and Somerset Xu Hui Shanghai in 3Q13 have been well received, with average daily rates (ADRs) rising 20%-35%. Looking ahead, the refurbishment programs at its various properties in Jakarta, Perth, Philippines, Barcelona will complete progressively,
allowing the trust to achieve better ADRs in 2014.
Asset recycling to drive higher portfolio yields. The proposed sale of 81 units at Somerset Grand Fortune Garden Beijing for an estimated consideration of up to Rmb 628m (S$128.1m) should be positive for the trust. Proceeds are likely to be used to repay debt in the interim or for yield-accretive acquisitions if the opportunities arise.
Hedging of overseas exposure. The Manager has attempted to reduce income volatility through entering into income hedges for its EUR/GBP exposures (70% of income), which means that uncertainty from income volatility is likely to be reduced going forward.
BUY maintained, TP S$1.42. Ascott REIT offers a steady DPU growth profile of c2-3% p.a. over FY13F-15F. Maintain BUY with a TP of S$1.42 for its attractive 6.9%-7.9% yields.
Publish date: 28/10/13