A-HTrust – DBSV

Beating IPO forecasts

• DPU of 1.23 Scts (post-sponsor waiver) above IPO forecasts by 2.2%

• Australian refurbishment exercise on track; Novotel Beijing Sanyuan outperformed expectations

• BUY maintained, TP raised to S$0.98 as we roll forward valuations

Highlights

FYP 2Q13 results above IPO forecasts. Ascendas Hospitality Trust (A-HTRUST) revenues and net property income came in at 2.1% and 8.8% respectively, higher than IPO forecasts but within our expectations. The strong performance came largely from China (Novotel Beijing Sanyuan) which achieved a RevPAR of Rmb535/night vs Rmb491 in the prospectus due to seasonally peak quarters. Australia achieved a RevPAR of AUS$135 (-3.1% vs IPO forecasts) due to disruptions from the ongoing planned refurbishment exercise but should remain stable going forward. Net property income margins improved to 33.2% on the back of various cost-efficiency and new operating measures instituted once Accor took over from Mirvac. It should maintain the higher margins going forward. As such, distributable income of S$8.7m (+2.5% yo-y) translates to a DPU of 1.09 Scts (1.23 Scts after sponsor waiver).

Our View

Australian hotels ramping up nicely. The refurbishment and rebranding exercise that is ongoing at its seven Australian hotels remain on track for completion by the middle of 2013 (1QFY14). We note that occupancy rates remain at a high of 84.3% in 2Q13, implying minimal disruptions to other operations. Upon completion in 2H13, we expect the new Accor-branded Australian portfolio to reap the benefits of hike in room rates and operational performance compared to when it was operated by Mirvac.

North Asian Hotels doing well; gearing to head up to 36% by 4QFY13. While Ariake Sunrote in Japan offers a stable earnings base for the trust, Novotel Beijing Sanyuan outperformed initial expectations, due to robust domestic demand for travel into Beijing. The planned purchase of Ibis Beijing Sanyuan Hotel, will be completed as planned in Jan 13. Gearing of 31.7% is expected to head up to c.36% after completion.

Recommendation

BUY maintained, TP S$0.98 based on DCF. We maintain our BUY call, with revised TP of S$0.98 as we roll forward our valuations. Yield of 7.2-8.2% is one of the highest amongst the SREITs.