Tuesday, 25 March 2014

Ascott Residence Trust

OCBC on 24 Mar 2014

ART announced last Friday that it has acquired a 389-unit rental housing property in Fukuoka for JPY6.3b (~S$78.4m) and with an EBITDA yield of 6.6%. On a pro forma basis, the accretive acquisition is expected to increase FY13 distribution per unit by 2.1%. This is the second property agreement announced after ART’s rights issue in Dec 2013. In Feb, ART entered into a conditional agreement to acquire its first serviced residence in Dalian for RMB571m (~S$118.6m) with an EBITDA yield of 5.5%. On a pro forma basis, that accretive acquisition was expected to increase FY13 DPU by 1.5%. We assume that any remaining acquisition or acquisitions to be announced in 1H14 will total S$153m with a 5.5% EBITDA yield. Incorporating the Fukuoka and Dalian acquisitions, we maintain our FV of S$1.33 and BUY rating on ART.

Another Japan rental housing property
ART has acquired a rental housing property in Fukuoka named Infini Garden for JPY6.3b (~S$78.4m) and with an EBITDA yield of 6.6%. On a pro forma basis, the accretive acquisition is expected to have increased FY13 DPU by 2.1% from 8.40 S cents to 8.58 S cents. ART acquired the 389-unit Infini Garden from The Ascott Limited (Ascott) and ArcResidential Japan Investments Limited. The master leasee is a third-party and with this acquisition, master lease contribution to total portfolio’s gross profit will grow increase from 32% to 34%. The remaining tenure of master lease is ~4.3 years.

Dalian property agreement announced in Feb
Recall also that in Feb ART entered into a conditional agreement with a third party to acquire its first serviced residence in Dalian for RMB571m (~S$118.6m) with an EBITDA yield of 5.5%. On a pro forma basis, that accretive acquisition was expected to increase FY13 DPU by 1.5% from 8.40 S cents to 8.53 S cents. This was the first acquisition announced after ART's rights issue in Dec 2013 which raised S$253.7m. The 195-unit international serviced residence, which commenced operations in 2009, has an average occupancy of about 80%. ART will refurbish the property and it will be managed by Ascott as Somerset Grand Central Dalian when the acquisition is completed, which is expected to be by mid-2014. 

Anticipate S$153m more in acquisitions
Before the announcements about the Dalian and Fukuoka properties, we had assume that around S$350m worth of property yielding ~5.5% will be acquired at the start of 2Q14; ART’s leverage will go back up to around 40%. We assume that any remaining acquisition or acquisitions to be announced in 1H14 will total S$153m with a 5.5% EBITDA yield.

Maintain BUY
Incorporating the Fukuoka and Dalian acquisitions, we maintain our FV of S$1.33 and BUY rating on ART.

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