Ascott Reits – CL
ASCOTT REITS, cl remains a BUY with target price $2.41 (from $2.16)
- The recent announcement of the F1 Grand Prix in Singapore has propelled Singapore into a tourist receipts magnet. The government.s ambitious target of attracting 17 million visitors by 2015 is underpinned by strong FDI inflows, the two integrated resorts, MICE activities, medical tourism hub status, leisure travel as well as the F1 Grand Prix. Tourist arrivals are expected to outstrip supply of hotels rooms and we remain convicted that ART.s Revpar is set to increase further in Singapore. Maintain BUY
- Grand Prix spillover . The Singapore government announced on 11 May 2007 that the city state will host the first street circuit F1 race in Asia. Flag off is expected to commenced in 4Q08 and generate receipts estimated at S$100m annually. Consequently, this has seen hotel rates and even some serviced apartment rates increasing by at least 50% during race periods and 20% annually. Given that these races can stretch as long as a week, we expect some spillover demand for serviced apartments which is currently regulated for stays longer than seven days.
- Robust FDI inflows . The increasing FDI inflows into the Asia region reaffirm our bullish view on ART, especially in Singapore where FDI inflows are estimated to reach US$19.9bn in 2007. Coupled with the government.s efforts to draw 17 million visitors by 2015 through the slew of massive projects, we expect positive impact on the Revpar for serviced apartments and hotels. Accordingly, Revpar in Singapore is at record highs of S$176.8 and we have assumed S$191 in our model. Despite new supply for hotels and serviced apartments in the pipeline, we expect demand to outstrip supply given the timing lag of oncoming supply.
- Diversified revenue base . Strong FDI inflows into Asia and ART.s diversified asset base across the Pan Asian region in our view are the pillars of growth and stability for the reit. Currently, Singapore contributes 24% of ART.s revenue and we expect the strong demand for hotel rooms and serviced apartments in Singapore should continue to bode well for its Singapore operations.
- Maintain BUY. In tandem with the narrowing yield gap of S-Reits with the Singapore 10yr bond yields, we have lowered our required yield by 50bps to 4.5% from the previous 5%. This implies a 20% upside from our target price of S$2.41 based on FY08’s DPU of 10.8c and a 4.6% dividend yield for FY07.