Ascott Residence Trust registered 4Q12 DPU of 2.00 S cents, above consensus but slightly lower than our estimate. 4Q12 revenue climbed 1% YoY to S$75.9m, with contributions from acquisitions (partially offset by decrease from divestments). Notably, gross profit fell by 4% YoY to S$38.5m. Management attributed the compression in gross profit margin to higher expenses in China, the Philippines and Vietnam (staff cost, and also utilities cost in the Philippines), and expects these cost pressures to persist. Currency movements led to a S$4m drop at the FY12 gross profit level to S$159.1m (~2.5% negative effect, 4Q12 displayed a similar percentage). We maintain our fair value of S$1.37 and downgrade ART to a HOLD.
Gross margins squeezed
Ascott Residence Trust registered 4Q12 DPU of 2.00 S cents, above consensus but slightly lower than our estimate. 4Q12 revenue climbed 1% YoY to S$75.9m, with contributions from acquisitions partially offset by decrease from divestments. Notably, gross profit fell by 4% YoY to S$38.5m. Management attributed the compression in gross profit margin to higher expenses in China, the Philippines and Vietnam (staff cost, and also utilities cost in the Philippines), and expects these cost pressures to persist. 4Q12 RevPAU declined 5% to S$139 due to weaker performance from the serviced residences in Vietnam and Indonesia (Ascott Jakarta undergoing refurbishment). The fair value of its properties declined S$27.9m in 4Q12 to S$2.79b, partially due to FX translation.
Strong SGD
In EUR terms, revenue and gross profit from master leases in France increased 6% and 4% YoY respectively in 4Q12. In SGD terms, however, revenue and gross profit decreased by 5% and 6% respectively. These leases contributed to 22% of FY12 gross profit. Currency movements led to a S$4m drop at the FY12 gross profit level to S$159.1m (~2.5% negative effect, 4Q12 displayed a similar percentage). According to management, there is a general expectation that the EUR will continue weakening against the SGD this year, with consensus of around 1-3%, versus the 7% drop seen between Dec 2012 and Dec 2011. In local currency terms, Singapore, Europe and Japan are expected to perform stably, except for the UK, which should continue to be strong. China and Indonesia are bright spots.
Concerns about Vietnam
Vietnam was highlighted as the key country where reduced corporate demand is a concern. ART may renovate Somerset Ho Chi Minh, since business is currently low. Management indicates that it seeks to renovate the properties every 8-10 years, and since quite a lot of renovation was done in 2011-2012, only a few properties will undergo refurbishment in 2013-2014.
Downgrade to HOLD
We maintain our fair value of S$1.37 and downgrade ART to a HOLD as its unit price is now close to our fair value estimate.
Ascott Residence Trust registered 4Q12 DPU of 2.00 S cents, above consensus but slightly lower than our estimate. 4Q12 revenue climbed 1% YoY to S$75.9m, with contributions from acquisitions partially offset by decrease from divestments. Notably, gross profit fell by 4% YoY to S$38.5m. Management attributed the compression in gross profit margin to higher expenses in China, the Philippines and Vietnam (staff cost, and also utilities cost in the Philippines), and expects these cost pressures to persist. 4Q12 RevPAU declined 5% to S$139 due to weaker performance from the serviced residences in Vietnam and Indonesia (Ascott Jakarta undergoing refurbishment). The fair value of its properties declined S$27.9m in 4Q12 to S$2.79b, partially due to FX translation.
Strong SGD
In EUR terms, revenue and gross profit from master leases in France increased 6% and 4% YoY respectively in 4Q12. In SGD terms, however, revenue and gross profit decreased by 5% and 6% respectively. These leases contributed to 22% of FY12 gross profit. Currency movements led to a S$4m drop at the FY12 gross profit level to S$159.1m (~2.5% negative effect, 4Q12 displayed a similar percentage). According to management, there is a general expectation that the EUR will continue weakening against the SGD this year, with consensus of around 1-3%, versus the 7% drop seen between Dec 2012 and Dec 2011. In local currency terms, Singapore, Europe and Japan are expected to perform stably, except for the UK, which should continue to be strong. China and Indonesia are bright spots.
Concerns about Vietnam
Vietnam was highlighted as the key country where reduced corporate demand is a concern. ART may renovate Somerset Ho Chi Minh, since business is currently low. Management indicates that it seeks to renovate the properties every 8-10 years, and since quite a lot of renovation was done in 2011-2012, only a few properties will undergo refurbishment in 2013-2014.
Downgrade to HOLD
We maintain our fair value of S$1.37 and downgrade ART to a HOLD as its unit price is now close to our fair value estimate.
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