Ascendas Hospitality Trust

DBS Group Research, Aug 12

ASCENDAS Hospitality Trust's Q2 2014 revenue and net property income of S$48 million and S$16.2 million came in 11 per cent and 7 per cent below IPO forecast.

This was attributed to the continued weakness in the operating environment in Australia and China, which led to revenue per available room (RevPAR) falling by 3.6 per cent and 9.9 per cent to A$163 (S$189) per night and 426 yuan (S$88) per night respectively.

A better performance from Ariake Sunroute hotel mitigated the weak performance at its other hotels. In addition, the weak Japanese yen and Australian dollar against the Singapore dollar further impacted performance.

As a result, distributable income was 12 per cent y-o-y lower at S$10.9 million, translating into a distribution per unit (DPU) of 1.29 Singapore cents.

The trust's operating landscape remains challenging. We had previously assumed a 5 to 10 per cent rise in RevPARs post-refurbishment for its hotel portfolio in Australia.

However, while response was good for the new rooms, the expected uplift in rates did not flow to earnings due to a weak operating climate in Australia.

In addition, the manager is able to roll over existing corporate contracts only at the end of the year. As a result, its hotels are likely to see a meaningful uplift in room rates only next year.

Moreover, its China and Singapore hotels are also likely to perform below initial estimates. We have thus reduced our RevPAR assumptions (from +7 per cent to -3 per cent) in FY2013 and have also reduced our AUD-S$ / JPY-S$ rates to current spot rates.

As such, we have cut FY2014 and FY2015 forecast earnings by 19 per cent and 15 per cent respectively.

Our target price has been adjusted to S$0.80 after taking into account our updated earnings forecast and a hike in risk-free rate assumptions. Maintain "hold".

HOLD