AscottREIT – DBS

Murky Skies

ART reported a good set of FY08 results backed by a strong underlying portfolio performance. Unitholders were rewarded with a DPU of 8.78 Scts, translating to a 17% yield based on today’s closing price. Looking ahead, we view catalyst for the stock appears lacking in the near term while negative headwinds are likely to impair stock re-rating. Maintain HOLD, TP S$0.61.

Results in line. FY08 distributional income of S$53.6m, DPU of 8.78 Scts were in line with expectations. Gross revenues and Gross profits increased 24% and 37% to S$193.4m add S$69.7m respectively, driven by organic RevPAU growth of 10% to S$145 and contribution from new assets.

Outlook challenging. While results were the group’s strongest since listing, outlook in FY09 remains challenging due to decreased business activity at its major operational markets, leading to slowing demand for its serviced residences. Management guides that booking volumes have softened and expects FY09 performance to be weaker sequentially. Our forward FY09-10 DPU estimates of 7.8 Scts reflect a 10% decline in portfolio RevPAU. Downside risk exists in the event of a more than expected decline in economic activity at its major operational markets

HOLD for further earning visibility. Facing an uncertain outlook coupled with continued negative newsflow of a worsening economic environment, we view that these might limit stock price performance in the near term. Re-rating opportunities will largely be macro-led, hinging on an improved economic outlook in their main operational markets, i.e Vietnam, Singapore and China. Maintain HOLD.