AscottREIT – DBS

Challenging outlook

Story: Ascott Residence Trust (ART) performed well in 3Q08, in line with our expectations. Gross revenues and profits grew by 25% and 49% to S$53m and S$27m respectively. China contributed to 55% of the increase, on the back of higher occupancies and room rates during the Beijing Olympics. Performances from other countries were mixed, with Singapore, Vietnam and Australia continuing to show growth while Philippines was affected by softening room demand. On a portfolio wide basis, average RevPAU posted a 21% increase yoy to S$163.

Point: Moving forward, uncertain economic outlook and slowing business activities is likely to dampen demand for rooms. Hence, we have assumed a 10% decline in RevPAU in FY09, staying steady in FY10. ART has a healthy balance sheet with a projected net gearing at 35.7% as at end-08, backed by its strong credit standing and sponsor. In addition, 73% of its total debt is locked in fixed rates.

Relevance: Valuations remain attractive at 0.3x P/BV coupled with a FY08 – FY10 DPU yield ranging 16.6 – 18.3%. However, we do not expect any positive newsflow in the near term clouded by the economic uncertainty. Due to the lack of catalyst for the sector moving forward, we maintain our HOLD call, TP $0.57 based on 30% to our RNAV estimate.