• Seasonally softer 1Q14
• Portfolio RevPAU flat at S$124
• AEIs and acquisitions to propel growth

1Q14 results within view

Ascott Residence Trust’s (ART) recent 1Q14 results were within our expectations. Both revenue and gross profit grew by 16% YoY to S$80.4m and S$39.2m, respectively. The growth was bolstered by contributions from the properties acquired in 2013 and improved performance at its existing properties, particularly from United Kingdom, France, Germany and Vietnam. Distributable income was down 3% to S$26.7m due to a one-off realized forex gain of S$8.1m in 1Q13. Together with the rights issue in Dec 2013, DPU eased 22% to 1.75 S cents. While this only meets 22% of our FY14F DPU, we view the results to be in line considering that this is a seasonally softer quarter and performance is expected to improve with new income streams from its announced acquisitions YTD.

Operating metrics mostly positive

For the quarter, RevPAU has remained stable both YoY and QoQ at S$124. However, we note that RevPAU for Japan, United Kingdom and Belgium saw a 18%, 13% and 11% increase respectively, driven by strong demand from corporate and leisure travelers. In Singapore and Vietnam, higher demand from executives on project assignments were also seen, and this has helped to push RevPAU up 6% in both countries. Only Australia and The Philippines were impacted by weaker marker demand and unfavourable forex movements. Nonetheless, as forward contracts to hedge 60%-70% of its estimated income derived in EUR, GBP and JPY were entered, we expect limited volatility in ART’s distribution.

Maintain BUY; fair value unchanged

We also understand that 17%-25% uplift in average daily rates was registered upon completion of the asset enhancement initiatives (AEIs) in 1Q. Looking ahead, management disclosed that it will continue to undertake AEIs to enhance customer experience and maximize returns (S$29.3m costs from 2Q14-2Q15). Coupled with the revenue from its Dalian property (acquired in Mar), Fukuoka property (to complete by Jul) and possibly new acquisitions in the key gateway cities, we believe 2H14 to be stronger. Maintain BUY with unchanged fair value of S$1.33 on ART.

Source: OCBC Research - 21 May 2014