Ascott Residence Trust - 9M15 below street despite 3Q portfolio REVPAU improving 10% YoY

9M15 DPU of S¢6.00 (+2.4% YoY) was broadly in line at 71-76% of street and CS FY15E. 9M gross profit grew 10% YoY due to contribution from acquisitions in 2014 and 2015, but was partly offset by lower contribution from FR and GER (EUR depreciation), and higher direct expenses (e.g., staff costs) incurred.

3Q portfolio REVPAU (in S$ terms) improved +10% YoY from S$128/day to S$141/day due to stronger contribution from CH, IN, and VN, as well as appreciation of the RMB, USD, and VND.

Management is targeting to grow the asset base to S$6 bn (S$4.7 bn currently) by 2017. Given gearing is 40% and S$250 mn of perpetual securities have already been issued, this could spell a potential equity fund raising.

Maintain NEUTRAL. While ART's geographical diversification, high proportion of fixed rates and longer-stay serviced residences add stability, at 6% yield, we believe the stock is fairly priced. Potential future equity raisings could provide better entry points.

9M15 DPU of S¢6.00 (+2.4% YoY) was 71% of street but in line with ours at 76% of FY15 estimates. 9M15 gross profit grew by +10% YoY supported by higher revenue (+15% YoY) due to S$30.5 mn from acquisitions made in 2014 (in AU, JP, CH, MY), and S$11.4 mn from acquisitions this year (in US, AU, JP) but was partly offset by lower contribution from France and Germany (EUR depreciation), and higher direct expenses (such as staff costs) incurred. Financing costs also increased by 16% due to debt raised to help fund acquisitions made.

Operational performance
3Q portfolio REVPAU improved +10% YoY from S$128/day to S$141/day due to stronger contribution from CH, IN, and VN, as well as appreciation of the RMB, USD, and VND relative to SGD. This helped 9M15 portfolio REVPAUs to stabilise (-1% YoY) to S$129/day (vs. 2H15 REVPAR falling -7% YoY).

Targeting to grow assets to S$6bn by 2017—could this spell an equity raising?
In 3Q15, ART has acquired eight properties totalling ~S$500 mn. Although gearing is currently at 40% (from 35.8% last quarter) and ART has already issued S$250 mn perpetual securities, management are targeting to grow ART's asset base to S$6 bn (S$4.7 bn currently) by 2017, which could spell a need for a potential equity fund raising.

Technical Analysis
Daily Chart
Maintain NEUTRAL, stability priced in
While ART's geographical diversification, high proportion of fixed rents and longer-stay serviced residences (vs. hotels) provides stability, but at 6% yield, we believe the stock is fairly priced. Future equity raisings could provide better entry points. (Read Report)

Read Related Report
1) Ascott Residence Trust - In-line set of 3Q15 results‏ by OCBC Investment Research, published on 30 October 2015

Source : Credit Suisse Asia Pacific Equity Research

Labels: ,