7 November 2014
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Inorganic driven growth

  • 3Q14 DPU +14.7% YoY on adjusted basis

  • Acquisitions to fuel growth ahead
  • Preferred hospitality REIT


3Q14 DPU in-line with our expectations

Ascott Residence Trust (ART) reported a 8.9% YoY increase in its 3Q14 revenue to S$93.7m, but DPU fell 11.0% to 2.11 S cents, as 3Q13 included one-off items amounting to S$1.5m. Adjusting for this and a rights issue exercise, ART’s DPU would have increased 14.7% YoY. Topline growth was largely driven by contribution from acquisitions made in 2014 and organic growth from its existing portfolio to a smaller extent. For 9M14, revenue rose 12.7% to S$262.2m. DPU dipped 14.6%, (but jumped 7.9% after adjusting for one-off items and effects from a rights issue) to 6.04 S cents. This formed 75.5% of our FY14 forecast, and we view this as within our expectations.

Still positive on outlook

Although ART’s RevPAU for its serviced residences declined 4% YoY to S$128 in 3Q14, this was largely due to the acquisitions of two assets in Wuhan and Xi’an, whereby the average daily rates are lower as compared to the tier-1 cities. From a same store perspective, we understand that ART’s RevPAU for its overall portfolio still rose 2% YoY in 3Q14. Looking ahead, management expects its portfolio to remain resilient despite the macroeconomic uncertainties. It has also hedged 70% of its estimated FY14 distribution income denominated in EUR and GBP and ~50% of its JPY exposure for FY14. While ART has yet to put in place FX hedges for its FY15 distribution income, we expect management to pro-actively monitor the situation and enter into forward contracts in the near future.

Maintain BUY

We incorporate ART’s recent accretive acquisitions in our model, and raise our FY14 and FY15 DPU forecasts by 1.9% and 2.2%, respectively. Our RNAV-derived fair value estimate is thus bumped up from S$1.33 to S$1.37. We reiterate BUY on ART, and recommend the stock as our preferred pick within the hospitality REITs sector. We believe its large, diversified portfolio of serviced residences offers better visibility and stability as compared to hotel assets. ART is also trading at an undemanding forward P/B ratio of 0.9x, while FY14F and FY15F distribution yields are attractive at 6.6% and 7.0%, respectively.



7 November 2014
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High yield maintained

  • 3Q14 EBITDA of S$48.0m (+3% y-o-y,-1% q-o-q) was c.5% below expectations; quarterly distribution of 2 Scts per share in line
  • Softer economy led to muted premium cable and broadband growth, offset by lower opex
  • Stock offers 9.4% yield on 8.25 Scts distribution in FY14; FY15 distribution to be equal or better
  • Maintain BUY with unchanged TP of S$ 0.91


Revenue impacted by softer economy

  • Revenue of S$ 80.5m (+2% y-o-y and q-o-q) was c.2% below our expectations. Growth in premium cable and broadband lagged expectations with lower than expected subscriber growth and Average Revenue Per User (ARPU). The company expects to miss its forecasted revenue target of S$ 323.8m in FY14. EBITDA dropped on lower revenues
  • Lower revenues were partly offset by lower than expected operating expenses. EBITDA is expected to remain strong via expansion into Greater Taichung area due to its better access to funding and superior content portfolio.


Network expansion on track

  • Operations in the new coverage areas are expected to commence in 4Q14. APTT is expected to ramp up capex to S$ 20m – 30m in 4Q14, up from S$ 9.5m in 3Q14. The benefits of capex spend is expected to be seen in FY15. Further capex of S$ 20m – 30m is expected in FY15-FY16, in line with our expectations. Existing borrowing facility sufficient for growth capex
  • APTT has ~S$88m of funding facility available for growth capex, with most of the tax settlement already done (~S$ 4m remaining). This should be sufficient for expected capex of S$ 40m-60m in the next few years.


Maintain BUY with DCF-based (WACC 7.2%, terminal growth 0%) TP of S$0.91.


7 November 2014
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Fairly valued

3Q14 gross revenue and DPU came in at S$93.7m (+8.9% yoy) and 2.11 Scts (-10.8% yoy), respectively. This set of results was in line with our estimates, with 3Q DPU accounting for 25% of our full-year estimate and 9M14 forming 72%. Factoring in the recent acquisitions, associated financing costs and perpetual securities issued, we maintain our Hold rating with an unchanged TP of S$1.30 as we tweaked our FY14/15 DPU forecasts by +0.6%/+1.3%.

Higher RevPAU in most markets

Ascott Residence Trust’s (ART) 3Q14 higher revenue was mainly due to the additional contribution from the nine properties acquired during the year. On a same-store basis the top line was flat (+0.3% yoy). DPU was significantly weaker, mainly due to dilution from the new shares issued in Dec 13 and the lack of the one-off distribution of c.S$1.5m made in 3Q13. Revenue per available unit (RevPAU) in 3Q14 for countries with management contracts was generally stronger, with UK and Japan growing by 2% and 10%, respectively, mainly due to strong corporate and leisure demand. Belgium, Spain and Australia posted growth of 15%, 29% and 27%, respectively, as a result of higher demand for refurbished apartments. On the other hand, Singapore and Vietnam posted poorer RevPAU due to lower corporate accommodation budgets while China and the Philippines were weaker due to the repositioning of the portfolio. Indonesia also posted a weaker RevPAU (-3%) this quarter.

Some acquisitions better than others

Although the top line will continue to benefit from the recently-announced acquisitions (three in Australia and one in Japan), we prefer the Australia acquisitions given i) the fixed lease contract, and ii) anticipated yield accretion (funding cost of 5% vs. initial NPI yield of 7.7%). For the Japan acquisition, given i) the initial yield of c.4.5%, ii) estimated capex of S$11m required for the AEI at this property, and iii) associated financing cost (estimated at 3.4-3.8%), we hold a neutral view as we believe the targeted yield of 5% post AEI will have a minimal positive impact on DPU after taking into account management fees.

Maintain Hold

As we believe the full potential from most of the assets acquired this year will not be realised in the near term, the dilution effect is expected to persist. On this basis, we have maintained our Hold rating with unchanged TP of S$1.30.

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