AscottREIT – CIMB

Fairly valued

3Q14 gross revenue and DPU came in at S$93.7m (+8.9% yoy) and 2.11 Scts (-10.8% yoy), respectively. This set of results was in line with our estimates, with 3Q DPU accounting for 25% of our full-year estimate and 9M14 forming 72%. Factoring in the recent acquisitions, associated financing costs and perpetual securities issued, we maintain our Hold rating with an unchanged TP of S$1.30 as we tweaked our FY14/15 DPU forecasts by +0.6%/+1.3%.

Higher RevPAU in most markets

Ascott Residence Trust’s (ART) 3Q14 higher revenue was mainly due to the additional contribution from the nine properties acquired during the year. On a same-store basis the top line was flat (+0.3% yoy). DPU was significantly weaker, mainly due to dilution from the new shares issued in Dec 13 and the lack of the one-off distribution of c.S$1.5m made in 3Q13. Revenue per available unit (RevPAU) in 3Q14 for countries with management contracts was generally stronger, with UK and Japan growing by 2% and 10%, respectively, mainly due to strong corporate and leisure demand. Belgium, Spain and Australia posted growth of 15%, 29% and 27%, respectively, as a result of higher demand for refurbished apartments. On the other hand, Singapore and Vietnam posted poorer RevPAU due to lower corporate accommodation budgets while China and the Philippines were weaker due to the repositioning of the portfolio. Indonesia also posted a weaker RevPAU (-3%) this quarter.

Some acquisitions better than others

Although the top line will continue to benefit from the recently-announced acquisitions (three in Australia and one in Japan), we prefer the Australia acquisitions given i) the fixed lease contract, and ii) anticipated yield accretion (funding cost of 5% vs. initial NPI yield of 7.7%). For the Japan acquisition, given i) the initial yield of c.4.5%, ii) estimated capex of S$11m required for the AEI at this property, and iii) associated financing cost (estimated at 3.4-3.8%), we hold a neutral view as we believe the targeted yield of 5% post AEI will have a minimal positive impact on DPU after taking into account management fees.

Maintain Hold

As we believe the full potential from most of the assets acquired this year will not be realised in the near term, the dilution effect is expected to persist. On this basis, we have maintained our Hold rating with unchanged TP of S$1.30.