ART – OCBC

EUROPEAN MASTER LEASES TO UNDERPIN STABILITY

•Defensive master leases in Europe

•Debt maturity well spread-out

•Balanced currency exposure

European master leases to underpin stability

Despite ongoing uncertainty in Europe, we believe that income from ART’s European assets would be underpinned by master leases arrangements in the 17 properties in France and two in Germany, which contributed a total of 26% of gross profit for 1Q12. In addition, management contracts with minimum guaranteed income are in place for seven properties in Belgium, Spain and the UK, which contributed 12% of 1Q12 gross profit.

Bulk of European asset value in prime locations

In terms of asset value exposure, 40% is in Europe of which the bulk is spilt between France (21%) and the UK (15%). Four of 17 French properties in the prime regions of core Paris make up about half of total French exposure. Similarly, in the UK, all four properties are in prime London locations – South Kensington, Trafalgar Square, Convent Garden and the Barbican respectively. This being so, we believe their book values would be relatively resilient and unlikely to suffer long term capital value deterioration.

Debt maturity profile remains healthy

The balance sheet remains healthy with gearing at 41.6% of as end Mar 12. In addition, the debt profile of ART is also relatively well spread-out, with 19%, 9% and 23% of total debt (S$1,170.2m) due in 2012, 2013 and 2014, respectively. Currency exposure is also balanced – with 26%, 32% and 29% of total debt is denominated in SGD, EURO and the JPY, respectively, with the remainder in the Sterling Pound, USD and AUD. Interest coverage is at 3.6 times.

Maintain BUY

With an attractive yield of 7.9%, we continue to see value in the share price. Also, an undemanding P/B ratio of 0.8x would translate to a reasonable margin of safety for bear case write-downs. We maintain our BUY rating with an S$1.14 fair value estimate.