ART – CIMB

Holding firm

• In line. 2Q09 distributable income of S$11m (-17% yoy) and DPU of 1.79cts (-18% yoy) were in line with Street and our expectations, forming 25% of our full-year estimate. 1H09 DPU of 3.56cts forms 49% of our full-year forecast. Gross profit of S$20.8m fell 11% yoy but improved 5% qoq. Although demand for serviced residences slowed globally yoy, ART’s qoq performance was boosted by contributions from Somerset St Georges Terrace and Somerset Westlake which were acquired after 2Q08, and improved gross profit margins (+1.3% pts qoq).

• REVPAU of S$119 was down 17% yoy. With the exception of flat REVPAU in the Philippines (+1%), REVPAU in all other countries fell: Singapore (-39%), China (- 19%), Vietnam (-12%). Yoy, portfolio REVPAU of S$119 was down 17%.

• Asset value down S$60.6m to S$1.55bn; 100% cash distribution. As at 30 Jun 09, HVS International revalued ART’s portfolio at S$1.55bn (-1.8% from Dec 08 valuation). After revaluation, NAV is now S$1.36 and price/NAV is 0.62x. Management says cap rates had not changed from December levels, and the lower valuation was blamed on lower REVPAU assumptions for serviced residences in China and Japan. It expects valuations to remain flat in Dec 09, in line with an anticipated improved performance in 2H09. There has been more aggressive marketing of ART’s properties, particularly for longer stays of more than one month and it expects fruits by 2H09. REVPAU is expected to improve moderately by 5- 10%. ART says it will be maintaining its 100% cash distribution policy.

• Downgrade to Neutral from Outperform; no change in estimates and DDMbased target price of S$0.79 (discount rate 10.3%). We maintain our forecast of a 13% decline in full-year REVPAU, in keeping with guidance. Our capex assumptions for FY09-11 are also in line with guidance. ART has risen 22% since our upgrade on 10 Jul, to exceed our target price of S$0.79. As such, we downgrade it to Neutral.