Thursday 25 July 2013

Ascott Residence Trust

OCBC on 24 Jul 2013

Ascott Residence Trust (ART) reported 2Q13 results that were better than our expectations but in line with the street. Revenue fell 2% YoY to S$77.4m and gross profit dropped 4% YoY to S$41.0m. However, unitholders’ distribution grew 14% YoY to S$30.9m (including a reversal of over-provision of prior years’ tax expense of S$2.7m), which led DPU up 3% YoY to 2.45 S cents. Average daily rates in Singapore are down ~3-7% in 2Q13. Assuming that exchange rates stay constant for the rest of the year, management believes that the whole portfolio's RevPAU for 2H13 will be flat or slightly higher than 1H13. We adjust our earnings forecasts for FY13-14 upwards in our valuation model and, as a result, our FV moves up slightly from S$1.31 to S$1.37. Maintain a HOLD rating on ART.

2Q13 in line with street
Ascott Residence Trust (ART) reported 2Q13 results that were better than our expectations but generally in line with the street. Revenue fell 2% YoY to S$77.4m due to the divestments of Somerset Grand Cairnhill and Somerset Gordon Heights Melbourne and lower contribution from existing properties, chiefly in China, Vietnam, Singapore and Japan. RevPAU contracted 9% YoY to S$142 and this was due mainly to the divestment of the Cairnhill property and weaker performance from China and Japan (depreciation of JPY). Gross profit dropped 4% YoY to S$41.0m. However, unitholders’ distribution grew 14% YoY to S$30.9m (including a reversal of over-provision of prior years’ tax expense of S$2.7m), which led DPU up 3% YoY to 2.45 S cents. Excluding the placement units issued in 1Q13, DPU for 2Q 2013 would be 2.70 cents. 

SG rates down 3-7%
In Singapore, on a same store basis, RevPAU and revenue fell due to disruption from nearby construction for Somerset Liang Court and weaker demand from project groups. Average daily rates in Singapore are down ~3-7% in 2Q13. Assuming that exchange rates stay constant for the rest of the year, management believes that the whole portfolio's RevPAU for 2H13 will be flat or slightly higher than 1H13.

Looking to fix 75% of interest rate cost
Effective borrowing rate was maintained at 3.1% for 2Q13 and management believes that 2H13's rates would be similar. Currently, 65% of ART's interest rate cost is fixed and management seeks to bring the number up to 75%. With the mid-year property valuations (conducted by new independent valuer Jones Lang LaSalle), 2Q13 saw a S$25.9m increase in fair value of the properties. Higher valuations for the properties in France, Japan and the UK were partially offset by lower valuations for Vietnam, Philippines and Germany.

Maintain HOLD
We adjust our earnings forecasts for FY13-14 upwards in our valuation model and, as a result, our FV moves up slightly from S$1.31 to S$1.37. Maintain a HOLD rating on ART.

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