ART – DBSV

An eye on high growth Asia

• 4Q12 results in line
  
• Moderate outlook with bright spots in Asia
  
• An eye on growth, TP raised to S$1.49
  

4Q12 DPU of 2.0 Scts in line. Ascott Residence Trust (Ascott REIT) reported 4Q12 distributable income of S$22.8m (DPU of 2.0 Scts) which was 10% higher y-o-y on the back of a 1% growth in topline to S$75.9m. This was due to the income contribution from its 4 newly acquired properties while portfolio RevPAU saw a slight dip of 5% to S$139/night. Translation impact on gross profits remains manageable at -3.3%.

Moderate outlook but with bright spots within Asia. While there is a general cautious mood amongst corporate clients, Ascott REIT will be taking a more active management role in starting refurbishment programs in order to refresh their product and raise room rates to optimise returns. There were bright spots noted in operations like China, Philippines, Indonesia and UK (combined forms c37% of FY13F topline), which are seeing improved demand while the remainder of its operations are expected to remain fairly stable, except for Vietnam, where there is increased competition.

An eye on growth, BUY TP S$1.49. We maintain BUY with a higher TP of S$1.49 after tweaking our forward RevPAU estimates and ascribing a lower discount rate. Looking ahead, management remains focused on growing its presence in growth markets in Asia and is reviewing opportunities to acquire in the region. Assuming a target initial yield of 6.0%, a debt cost of 3.5% and keeping gearing constant, we estimate that acquisitions of up to S$500m could boost DPU by up to 10.1% and add a further S$0.10 to our TP.