Ascott Residence Trust

UOBKayhian on 8 Jul 2014

FY14F PE (x): 8.5
FY15F PE (x): 9.2
Ascott Residence Trust (ART) announced the acquisition of three serviced residences
in Malaysia (1) and China tier-2 cities (2) from its sponsor The Ascott Limited for a total
purchase consideration of S$174m.
Yield-accretive acquisitions done at a slight discount to valuations. The acquisition of
three serviced residences is yield-accretive with a blended average pro-forma EBITDA
yield of 5.1% and will result in a proforma DPU increase of 1.2% assuming the
transaction was done at the beginning of 2013. Management guided that the China
properties are still ramping up and expects 2014 EBITDA yields to be better than last
year. In terms of valuation, the portfolio is being acquired at a slight 1% discount to the
average of two independent valuations. The overall funding cost for the acquisition is
expected to be slighlty lower than 4%.
Upgrade to BUY and increase target price by 7% to S$1.40. The acquisition clears the
overhang on the deployment of the funds raised through placement proceeds and
offers scope for organic yield improvement. ART is currently trading at an attractive
2015F yield of 7.4% (peers average: 7%). Thus, we upgrade the stock from HOLD to
BUY with a target price of S$1.40. Our valuation is based on a two-stage DDM model
(required rate of return: 8.1%; terminal growth rate: 2.0%).