ART – CIMB

Boosted by European portfolio

• In line; upgrade to Neutral from Underperform. FY10 results met Street and our expectations, at 102% of the respective full-year forecasts. Stronger REVPAU assumptions for Singapore, stronger assumptions for gross operating profit margins and moderate growth expectations for its European portfolio raise our FY11-12 DPU estimates by 2-4%. We also introduce FY13 estimates. Following our upgrade, our DDM-based target price climbs to S$1.32 from S$1.22 (discount rate 8.3%). Upgrade to Neutral as we see re-rating catalysts from stronger-than-anticipated REVPAU growth in Singapore due to MICE and tourism growth, and in the UK in the lead-up to the 2012 London Olympics.

• FY10 DPU of 7.54cts (our forecast 7.43cts) grew 2.7% yoy. Gross profit of S$39.3m in 4Q10 grew 80% yoy on full contributions from 28 properties acquired in 3Q10, offset by the divestment of Ascott Bejing and Country Woods, and strong performances in Singapore, the UK and Australia. However, 4Q10 DPU growth of 15.6% yoy to 2.16cts paled in comparison due to dilution from equity fund-raising. Europe now contributes 43% of ART’s gross profit, with the top-3 contributing countries being France, Vietnam and Singapore.

• Singapore and UK could grow stronger. Singapore is one of ART’s biggest growth markets, where gross profit grew 14% qoq and REVPAU, 15% yoy to S$219. Although qoq REVPAU was down 10%, we believe this was due to seasonality. YTD REVPAU of S$208 has grown 25% from a year ago. That said, this is still 15% below peak levels of S$249. We believe ART can achieve or even surpass peak levels in 2011, backed by strong visitor arrivals and MICE growth. Surprising us this quarter was gross profit in the four UK properties which grew 31%, above management’s forecast. REVPAU was also 9% above forecast at S$174. This was attributed to the successful refurbishment and rebranding of “Citadines Prestige” in two properties, which enabled higher pricing. Management will start to rebrand Citadines Trafalgar Square this year, and we anticipate improved pricing thereafter. The lead-up to the 2012 London Olympics is also likely to boost performance.