Category: ART
AscottREIT – DBS
Murky Skies
ART reported a good set of FY08 results backed by a strong underlying portfolio performance. Unitholders were rewarded with a DPU of 8.78 Scts, translating to a 17% yield based on today’s closing price. Looking ahead, we view catalyst for the stock appears lacking in the near term while negative headwinds are likely to impair stock re-rating. Maintain HOLD, TP S$0.61.
Results in line. FY08 distributional income of S$53.6m, DPU of 8.78 Scts were in line with expectations. Gross revenues and Gross profits increased 24% and 37% to S$193.4m add S$69.7m respectively, driven by organic RevPAU growth of 10% to S$145 and contribution from new assets.
Outlook challenging. While results were the group’s strongest since listing, outlook in FY09 remains challenging due to decreased business activity at its major operational markets, leading to slowing demand for its serviced residences. Management guides that booking volumes have softened and expects FY09 performance to be weaker sequentially. Our forward FY09-10 DPU estimates of 7.8 Scts reflect a 10% decline in portfolio RevPAU. Downside risk exists in the event of a more than expected decline in economic activity at its major operational markets
HOLD for further earning visibility. Facing an uncertain outlook coupled with continued negative newsflow of a worsening economic environment, we view that these might limit stock price performance in the near term. Re-rating opportunities will largely be macro-led, hinging on an improved economic outlook in their main operational markets, i.e Vietnam, Singapore and China. Maintain HOLD.
AscottREIT – CIMB
More vulnerable
• Met expectations. 4Q08 and full-year DPU numbers were in line with Street and our expectations. Full-year gross revenue of S$192.4m was up 24.2% yoy on strong performances from Singapore (higher daily rates), Australia (Somerset St George’s Terrace, Perth acquired last year), China (higher daily rates during Olympics), Japan (rental housing) and Vietnam (higher daily rates). NPI margins fell qoq from 52.5% to 43.9% on declines in Singapore, Japan and China. Significantly higher property expenses in Singapore and Japan, as well as room-rate declines after the Olympics in China caused the dip in NPI margins.
• REVPAU declined 18.4% qoq. Although REVPAU only dipped 3.6% yoy to S$133, the qoq decline was much starker at 18.4%. Declines were led by ART’s major markets of China (-43%) and Singapore (-12.2%). The average length of stay had also fallen from more than eight months in FY07 to seven months, the result of increased customer preference for shorter leases of under one year.
• Cap rates, asset leverage up. As at 15 Dec 08, ART’s portfolio value declined by S$88.9m, mainly because of lower valuation for its serviced residences in China and Japan. Cap rates expanded by 50-100bp in the latest valuation. With this valuation, asset leverage rose to 38.1%, still healthy.
• Bracing for tough times. Management admits that the challenges ahead are “unprecedented” and expects 2009 to be weaker than 2008. However, capital management remains prudent and the bulk of refinancing (S$382.5m) will only be due in 2011.
• Maintain Underperform and target price of S$0.56. We maintain our DPU estimates for FY09-10 and introduce FY11 forecasts. Forward yields of 14% and a P/BV of 0.32x make the stock cheap vs. the REIT average of 0.41x. Nonetheless, due to the short tenure of serviced residences vs. traditional property segments like industrial and commercial, ART remains more vulnerable to profit volatility in a deteriorating economic environment. Maintain Underperform.
AscottREIT – BT
Ascott Reit’s Q4 distributable income falls 20%
ASCOTT Residence Trust (ART) yesterday announced a distributable income of $10.32 million for the fourth quarter of 2008, a fall of 20 per cent from the previous corresponding period’s $12.85 million because of one-off expenses.
The one-off expenses amounting to about $1.7 million related mainly to a refurbishment cost. ART said that excluding this one-off item, distribution could have been just 6 per cent lower due to higher finance costs.
Distribution per unit (DPU) for the quarter also fell 20 per cent year-on-year, to 1.69 cents.
For its serviced residences, the Pan-Asian residence real estate investment trust registered a 4 per cent year-on-year in revenue per available unit (RevPAU) to $133 for the three months ended Dec 31, 2008. This was mainly because demand for serviced residences in China saw a fall after the Beijing Olympics.
For the full year, distributable income was 19 per cent better at $53.7 million. As Ascott Residence Trust Management Limited (ARTML) chief executive Chong Kee Hiong said of ART’s FY2008 performance, ‘everything is still up’. ARTML, the trust’s manager, is a subsidiary of CapitaLand.
DPU for the full year rose 14 per cent to 8.78 cents, a distribution yield of 17.4 per cent based on ART’s closing price of 50.5 cents per unit on Thursday.
The higher distribution was due to strong operating performance in 2008, a result of organic growth as well as contributions from new acquisitions.
However, rental income might decrease the coming year, as Mr Chong expects tenants to renew on shorter terms. ‘It is quite clear that people are renewing for shorter stays, and the average length of stay will drop.’
Revenue for the quarter came to $47.7 million, 11 per cent higher year-on-year. Full-year revenue was $192.4 million, a 24 per cent increase. Upon completion of its latest acquisition in Vietnam, ART’s portfolio will expand to 38 properties worth $1.53 billion in 11 cities.
Mr Chong said: ‘We will continue to apply cost containment measures as well as control our discretionary capital expenditure to maximise asset yield.’
ART expects its operating performance in 2009 to ‘remain profitable but lower than 2008’.
Hospitality – DBS
From Formula One To None
Tourist Arrivals Continue to Drop YoY: October 2008 tourism data extended the continued decline in visitor arrivals, which have been dropping yoy since June 2008. For the month, total tourist arrivals were 843,000, representing an 8.1% fall compared to the year-ago period. This brings 2008 year-to-date arrivals to around 8.4 million. With 2 months of the year remaining, visitor arrivals and spending are expected to fall short of the 2008 targets of 10.8 million and S$15.5bn respectively. If we project the similar c.8% drop yoy in tourist arrivals to November and December numbers, overall arrivals in 2008 will come in at just a touch above 10 million, and would represent the first yoy drop in annual tourist arrival numbers (from 10.3 million in 2007) since the SARS outbreak in 2003.
RevPAR Growth Hits A Roadblock: Average Room Rate (ARR) was estimated at S$241, which is an 8.4% increase over the year-ago period. The Average Occupancy Rate (AOR) for gazetted hotels was estimated at 82% in October, which was a drop of 6.8 percentage points over October 2007. RevPAR grew only by 0.1% yoy to S$199, the first month this year with flat RevPAR growth over the year-ago period.
Cautious on Sector, Banyan Tree TP Reduced: We remain CAUTIOUS on the hospitality sector. We retain our HOLD call on CDL HT (TP S$0.62), with its mid-tier to upscale hotel mix more likely to benefit from business travel downgrades, borne out by the reduction in RevPAR of around c.2% for these two segments in October 2008, compared to a c.9% drop in RevPAR for the luxury segment. We also maintain HOLD on ART (TP S$0.57) with our view that its earnings are likely to be most resilient among the hospitality plays, given longer leases and a likely increase in contract work (over permanent employment) in current uncertain markets. We retain our FULLY VALUED call on Hotel Properties (TP S$0.76), with its slate of local luxury hotels and regional luxury resorts likely to be impacted by the global economic downturn. We also maintain FULLY VALUED on Banyan Tree, and have increased the discount to its SOTP valuation of S$1.23 from 60% to 70% on account of the deteriorating political situation in Thailand, which we believe will impact tourism arrivals for some months to come. Our TP is reduced from S$0.52 to S$0.37.
ART – CIMB
Changing seasons
• Maintain Underperform. ART’s 9M08 earnings performance had been good. However, management guides that the fourth quarter is typically the weakest. REVPAU in China which had surged during the Olympics Games is likely to normalise. The global economic downturn would have a material impact on international travel and the outlook looks bleak even for the serviced apartment industry.
• RevPAU cut by up to 20%. In line with our house view that the US financial crisis could result in a marked slowdown in Asia, we recently cut our REVPAU forecasts (a function of occupancy and average daily rates) by up to 20% per annum for the next three years. Separately, we removed all acquisition assumptions for FY09. We also raised our cost-of-debt assumption for ART to 3.5% from 4% for FY08.
• Unchanged DDM-derived target price of S$0.56 (discount rate 10.5%). Current P/BV appears attractive at 0.4x relative to the S-REIT’s 0.51x. However, price catalysts are likely to be limited with the cloudy outlook for leisure and business travel.