ART – DBS

Sitting pretty

• Sequential improvement in 3Q09 on the back of improving operational performance
• RevPAU up 4% qoq from higher occupancies
• Maintain BUY, TP S$1.25

Improving operations. Ascott Residence Trust (ART) reported 3Q09 results in line with expectations. While revenues and gross profits were 17% and 21% lower yoy to S$44.4m and S$22.0m owing to a exceptional Beijing Olympics last year, performance showed a sequential improvement from rising demand seen in their Singapore, China, Japan and Indonesian operations. Distributable income came in at S$11.8m (-25% yoy, +7% qoq), translating to a DPU of 1.92 Scts.

RevPAU up 4% qoq – a good sign. We are encouraged by further signs of improvement in ART’s core markets in Singapore, China and Japan. As such, we are adjusting our occupancy estimates upwards by up to 2% to reflect our more positive outlook for travel demand and expansion in annual travel budgets of corporate, thus fueling demand for accommodation. DPU forecast for FY10 and FY11 adjusted up by 2.4% and 2.6%.

Maintain BUY, TP S$1.25. On the back of an improving travel outlook, we are positive that ART will be able to deliver a sustained FY09-11F DPU yield of 6.6 – 7.5%. Maintain BUY, with revised TP of S$1.25 on slightly lower WACC assumptions. (-25 bps). Further upside catalysts will include (i) stronger than expected RevPAU performance in 4q09, (ii) accretive acquisitions.