Category: ART
Ascott Reit – Daiwa
ASCOTT REITS, daiwa downgraded to UNDERPERFORM from Hold with target price $2.47
Ascott Reits – CL
- The recent announcement of the F1 Grand Prix in Singapore has propelled Singapore into a tourist receipts magnet. The government.s ambitious target of attracting 17 million visitors by 2015 is underpinned by strong FDI inflows, the two integrated resorts, MICE activities, medical tourism hub status, leisure travel as well as the F1 Grand Prix. Tourist arrivals are expected to outstrip supply of hotels rooms and we remain convicted that ART.s Revpar is set to increase further in Singapore. Maintain BUY
- Grand Prix spillover . The Singapore government announced on 11 May 2007 that the city state will host the first street circuit F1 race in Asia. Flag off is expected to commenced in 4Q08 and generate receipts estimated at S$100m annually. Consequently, this has seen hotel rates and even some serviced apartment rates increasing by at least 50% during race periods and 20% annually. Given that these races can stretch as long as a week, we expect some spillover demand for serviced apartments which is currently regulated for stays longer than seven days.
- Robust FDI inflows . The increasing FDI inflows into the Asia region reaffirm our bullish view on ART, especially in Singapore where FDI inflows are estimated to reach US$19.9bn in 2007. Coupled with the government.s efforts to draw 17 million visitors by 2015 through the slew of massive projects, we expect positive impact on the Revpar for serviced apartments and hotels. Accordingly, Revpar in Singapore is at record highs of S$176.8 and we have assumed S$191 in our model. Despite new supply for hotels and serviced apartments in the pipeline, we expect demand to outstrip supply given the timing lag of oncoming supply.
- Diversified revenue base . Strong FDI inflows into Asia and ART.s diversified asset base across the Pan Asian region in our view are the pillars of growth and stability for the reit. Currently, Singapore contributes 24% of ART.s revenue and we expect the strong demand for hotel rooms and serviced apartments in Singapore should continue to bode well for its Singapore operations.
- Maintain BUY. In tandem with the narrowing yield gap of S-Reits with the Singapore 10yr bond yields, we have lowered our required yield by 50bps to 4.5% from the previous 5%. This implies a 20% upside from our target price of S$2.41 based on FY08’s DPU of 10.8c and a 4.6% dividend yield for FY07.
Hospitality REITs – UOBKH
Hospitality REITs – Where’s The Cream?
Hospitality, a mixed segment. Amongst the hospitality REITs which is represented by three stocks, CDL Hospitality Trust (CDREIT) provides a proxy to the tourism play, Ascott Residence Trust (ART) to the serviced residence segment, and First REIT (FIRT) to the healthcare industry. In comparison, CDREIT is very much Singapore-focused while the latter two offers a more regional exposure.
Remaking of Singapore main catalyst. Remaking of Singapore as a global city and ‘hub of hubs’ has brought about tremendous benefits to the hospitality industry and the hospitality REITs benefit in the following ways:
a) CDREIT – The tourism story in Singapore is well-known following the construction of IRs and the license to hold the Formula One Grand Prix. Hotels are set to benefit from the increase in visitor arrivals and room rates should rise in view of the short term limited supply of hotel rooms.
b) ART – Business and financial hub status of Singapore and growth of other Asian cities will spur demand for serviced apartments for expatriates and professionals. Globalization is a key factor in demand for serviced apartments in strategic locations worldwide. ART offers a regional exposure with assets in strategic locations.
c) First REIT – Beneficiary of medical tourism and Singapore as a healthcare hub with exposure to Indonesia and Singapore. First REIT has a higher yield in part of its riskier assets in Indonesia.
CDREIT to benefit in the short term. We believe that In the remaking of Singapore, tourism is a more compelling catalyst to the segment and CDREIT will benefit most in the short term. In addition, it has recently made its second acquisition of the Novotel Clarke Quay hotel since IPO, after its first acquisition of the Rendevous Hotel Auckland. The acquisition is expected to increase its DPU by 8.9% with an annualised property yield of 5.5% in FY07.
Our sensitivity analysis indicates that for every 10% increase in room rates, CDREIT’s yield will increase 0.25%-0.28%.
ART – OCBC
1Q boosted by recent acquisitions
Results benefited from recent acquisitions. Ascott Residence Trust (ART) reported 1Q07 revenue of S$29m and distributable income of S$8m, 5% and 10% higher than its own forecasts respectively. Distributable income per unit (DPU) was 1.59 cents, in line with forecast. ART’s higher 1Q revenue was primarily driven by higher average daily rates in Singapore and the Philippines. The strong performance was further boosted by the inclusion of the Philippines (Ascott Makati) and Vietnam in late March 2007.
More of the same in 2H07. In 2006, ART announced the acquisition of five assets worth about S$218m. So far this year, ART has announced deals worth S$144m, and when completed, this will raise its asset size to about S$1.1bn. This implies asset growth of 40% since its IPO. Going into 2H07, we see ART announcing more acquisitions to drive its growth.
Cash call well subscribed. In our Jan 07 report, we had articulated that a cash call was imminent. This was because as of end 2006, ART’s gearing of 29% (and with no credit ratings) left not much headroom for more debt. Furthermore, it had already announced S$266m of acquisitions which had yet to be completed. Indeed in Mar ART had an equity fund raising to raise S$199m via the issue of 105.3m new units. The fresh equity together with the credit rating means that ART is ready for further acquisitions. We estimate that it has an estimated war chest of about S$353m.
ART S$2.0bn target size is achievable. With the potential to gear up to 60%, ART should see no issue in achieving its target asset size of S$2.0bn by end 2008. Based on current size of S$1.1bn, this means about S$450m of acquisitions per year. We see a high possibility of ART exceeding this and believe S$2.5bn as achievable with the bulk of its acquisitions coming
from parent The Ascott Group.
Maintain fair value S$1.94. Even though we continue to like ART as a unique service residential REIT play, capital value upside remains limited. Moreover with DPU yield at only about 3.7%, the estimated total potential return of only about 8.5% is not compelling. We thus maintain our HOLD rating and fair value estimate of S$1.94.
ART – OCBC
Maintain HOLD
Cash call to raise S$199m. Ascott Residence Trust (ART) recently announced its intention to issue 105.3m new units to raise S$199m via an Equity Fund Raising exercise. The new units will increase ART’s existing number of units by about 21%. So far, the placement tranche, which makes up 47% of the new units, has had overwhelming response with demand exceeding supply by 15 times at S$1.90/unit. Similarly, the retail tranche (making up about 8% of new units) was fully taken up via ATM within a day of its launch. The only portion left is the amount allocated to existing unitholders. This portion makes up about 45% of the new units and unit-holders have until 20th Mar to accept the offer. We do not see demand from existing unit-holders as being any less enthusiastic. So the S$199m new equity is almost certainly in the bag.
We expected the cash call. In our Jan 07 report, we had articulated that a cash call from ART was imminent. This was because as of end Dec 06, ART’s gearing of 29% (and with no credit ratings) left not much headroom for more debt. Furthermore, it had already announced S$266m of acquisitions which had yet to be completed. With the expected new equity and the newly assigned credit rating, we estimate that ART could raise a further S$192m worth of debt and still maintain its gearing at a comfortable 45%. (Gearing of 60% is allowable for REIT with credit rating.)
ART targeting S$2.0bn size by end 08. With the announced acquisition so far, we expect ART to reach an asset size of S$1.2bn fairly soon. This is a rapid 32% rise in size since its IPO in 1Q06. Going forward, we do not anticipate this rapid growth rate to slowdown anytime soon. ART has guided for an asset size of S$2.0n by end 2008. There is a good possibility of ART exceeding this and we see a S$2.5bn size as easily achievable with the bulk of acquisitions coming from its parent The Ascott Group.
Revised up fair value to S$1.94 on lesser dilution. In our fair value estimate, we had allowed for ART target size of S$2.5bn. However, with the higher price of the new units, fewer units will be issued to finance its acquisition led growth strategy. This lower cost of equity in turn has a positive impact on our valuation. We have thus marginally adjusted up our fair value estimate from S$1.82 to S$1.94. We maintain our HOLD rating on ART.