ART – DBSV

Poised for bigger things

• Enhanced earnings stability via European portfolio purchase

• Organic growth drivers present, +9% DPU boost to forecast in FY11

• Pursuing further growth through acquisitions in Pan Asia region

• BUY, TP S$1.38 offers a total return of 16%

Earnings stability from European assets. After the acquisition of the European portfolio from its sponsor, Ascott REIT will enjoy greater earnings stability and visibility, with average length of stay increasing to 2 years. Going forward, we estimate that 40% of its EBITDA will be backed by master leases/income guarantee structures.

9% growth in DPU in 2011, one of the strongest amongst SREIT peers. Growth from (i) rebounding travel demand across its Pan Asia portfolio (contributing 60%of FY11F EBITDA) with Singapore as the strongest performer given its robust outlook post opening of the 2 IRs, boosted by the opening of its newly refurbished rooms and newly acquired Citadines Mount Sophia, (ii) London (contributing 11% of FY11F EBITDA) to show sustained growth in RevPAU upon the phased completion of its refurbishment exercise at Citadines South Kensington & Holborn-Covent Garden properties, coupled with improving operating environment.

Pursuing acquisitions. After consolidating the European acquisitions, the focus will be on opportunities in the Pan Asia region to grow its exposure in “growth” economies, where the serviced residences concept thrives. The sponsor, Ascott Limited continues to offer a source of acquisition possibilities, estimated at over S$1.5bn in assets (over 6,000 units), which we believe could be injected opportunistically in the medium term.

BUY call maintained, TP S$1.38 offers total return of 16% We believe Ascott REIT has emerged stronger after its recent acquisitions and continues to offer good exposure to the robust travel market in Asia. FY11F-13F yields of 6.1-6.8% remain attractive, with further upside from potential execution of accretive acquisitions, which we have not factored in our forecasts.