A-HTrust – DBSV

Softness Down Under

• 3Q12 results in line
  
• Australian operations remain under pressure; China hotels, the near-term earnings driver
  
• Downgrade to HOLD, TP S$1.03
  

3Q13 results in line.
Ascendas Hospitality Trust’s (A-HTRUST) revenues of S$51.4m was 2.5% below forecasts as its Australian hotels continue to face challenging prospects in a soft operating environment (RevPAR A$129/night, – 7.5% vs forecast) while a weak JPY-S$ marginally impacted the performance of its Ariake Hotel. The strong performance came largely from China (Novotel & Ibis Beijing Sanyuan) which achieved a RevPAR of Rmb378/night, +1.2% y-o-y. Net property income, however, improved by 4.1% against forecasts due to stringent cost measures. Thus, distributable income of S$12.5m (+3.6% above forecasts) translates to a DPU of 1.55 Scts (1.77 Scts after sponsor waiver).

Outlook remains mixed; Australian operations under pressure.
The refurbishment and rebranding exercise that is ongoing at its seven Australian hotels remains on track for completion by Aug13 (1QFY14). We note that occupancy rates have slipped slightly to 79.5% in the midst of a tough operating climate. We note that the industry continues to price rates competitively and thus, A-HTRUST hotels have to follow likewise in order to maintain occupancies. Nevertheless, upon completion in 2H13, we expect the new Accor-branded Australian portfolio to continue to reap the benefits of its refurbishment exercise through room rate hikes and improved margins. Its China hotels, namely Novotel & Ibis Beijing Sanyuan, are expected to continue benefiting from the robust domestic demand for travel into Beijing.

Downgrade to HOLD with revised TP of S$1.03. Our TP is nudged slightly upwards to S$1.03 as we reduce our discount rates but downgrade to HOLD, given limited upside to our TP objective. Upside surprise is likely to hinge on acquisitions that we have not factored in. The stock offers yields of 7.3-7.6%.