ART – DBSV

Stellar Singapore!

• 3Q10 DPU of 1.85 Scts in line

• Stellar Singapore operations drove portfolio growth

• Expanded portfolio provides stable and visible income source ahead

• Maintain BUY for exposure to booming travel industry in Asia. TP S$1.38 (20% total return)

3Q10 DPU of 1.85 Scts in line. Ascott REIT (“ART”) topline and gross profit of S$43.5m (+5% yoy, +5% qoq) and S$21.1m (-6% yoy, +2% qoq) respectively were in line with expectations. Led by strong performances in its Singapore and Philippines operations, ART achieved a portfolio RevPAU of S$130/night in 3Q10 (+7% yoy, +4% qoq) on the back of slight uptick in occupancies to 83%. Distributable income remained stable at S$11.9m, translating to a DPU of 1.85 Scts (excluding distribution to placement units, DPU will have been 1.94 Scts).

Performance pulled ahead by Singapore, With inventory in Singapore fully operational, it delivered a stunning 31% growth in topline, which was in line with expectations, driven by higher RevPAU (S$243/night, +37% yoy). This is followed closely by its operations in Australia (RevPAU: S$153, +15%yoy) and Philippines (S$137, +4% yoy), due to improved demand for rooms amid rebounding travel activities. Operations in the other remaining countries were relatively mixed.

Asia to drive 53% of topline growth going forward. With the recent portfolio injections from the sponsor completed, ART will derive 53% of its income from Asia and the remaining 47% from Europe. This will form a stable and visible income source for ART from 4Q10 onwards. We moderate our FY10-11 DPU forecast slightly to account for a stronger S$.

BUY call maintained, TP S$1.38. With FY11-12 prospective yield of c6.6-6.7%, ART offers investors an attractive exposure to the recovery in global travel & business activities. Current price offers total return of 20%.