ART – DBSV

A better tomorrow

• Improving outlook for 2H10 as Singapore and China operations fuel growth

• Acquisitions if any, likely to be earnings accretive

• Maintain BUY, TP S$1.44 offers total return of 23%

DPU of 1.87 Scts in 2Q10 (+4% yoy, +13% qoq) Revenues and gross profits increased to S$44.4m (+3% yoy, +2% qoq) and S$20.8m (unch yoy, +1% qoq) on the back of higher average occupancies from its properties in Singapore and China. Average portfolio RevPAU increased to S$125/night (+5%yoy, +4%qoq). Distributable income came in at $11.6m (+5% yoy, +12%qoq), translating to a DPU of 1.87 Scts. The group booked revaluation gain of S$32m from higher valuations of its Singapore and Japan properties, raising NAV to S$1.38.

2H10 performance boost by increasing occupancies in Singapore and China. Performance in 2H10 will benefit from (i) completion of its refurbishment program in Singapore in 2Q10. ART is now able in offer its full suite of rooms priced at c15%higher than previous rates, (ii) improving room occupancies from its Beijing and Shanghai properties. Performance of the remaining portfolio will remain relatively resilient with increasing business activities.

Acquisitions for growth are positive catalysts in our view. ART currently trades at implied yields of c6% and we could potentially see accretive acquisition opportunities from either sponsor Ascott or 3rd parties, which are not factored in our numbers. Management guided that a myriad of opportunities including assets in Vietnam, India, Singapore, China and Europe, are under considerations. With net gearing of 40%, we believe future acquisitions will be funded by both debt & equity.

Maintain BUY and TP at S$1.44. With both organic growth and acquisition opportunities, we are positive that ART will continue to deliver steady distributions. FY10-11F DPU yields of 6.2-6.9% remain attractive.