ART – CIMB

Proactively strengthening

4Q was a decent quarter. Nonetheless, we believe fairly high asset leverage, threats to growth and forex risks could cast dark clouds over ART. With European exposure and the ongoing turmoil in Europe, ART’s share price could remain range-bound.

4Q/FY11 DPU is in line with consensus and our estimates, at 21%/98% of FY11. We raise DPU and DDM-target price (disc rate 9.1%) to factor in stronger Indonesia and Australia performances, offset by higher borrowing costs. We also introduce FY14. Maintain Neutral.

Decent 4Q

As corporates tighten their belts and cut costs, we expect a slowdown in corporate travel. Nonetheless, ART’s 4Q gross profit was up 4% yoy on a same-store basis. The surprise came from stronger performances in Indonesia and Australia which benefited from stronger oil and gas industries. We raise our DPU to factor this in.

No major stress in Europe yet

In Europe, the UK continues to perform strongly while Belgium, France, Spain and Germany are generally stable. An unresolved eurozone crisis, however, continues to threaten ART’s European portfolio, although downside should be capped by master leases, management contracts with minimum guaranteed income and boosts from AEI.

Capital management

Management refinanced S$145m of debt in 4Q, lowering debt maturing in FY12 to 22% of total borrowings. It also secured S$250m MTN facilities to refinance some loans ahead of expiry to spread out its debt maturity. Through this, loan tenure has been extended to 3.4 years while debt due in 2012 has been brought down to 22% from 35%. While asset leverage has dipped to 41% from 42% on higher asset revaluations, we remain slightly concerned about devaluation risks on a full-blown eurozone crisis.