• Broadening its earning base
• Performance remains healthy
• 2H14 to fare better

Completion of asset acquisitions

Ascott Residence Trust (ART) announced last week that it has completed the acquisitions of the serviced residence property (SR) in Malaysia and two SRs in China for a total property value of S$173.9m. Recall that management estimates the blended EBITDA yield to be 5.1% and the acquisitions to increase its FY13 DPU by 1.2% on a pro forma basis. With the completion of these acquisitions, we note that ART’s earning base will not only be strengthened, but its asset size and portfolio would also be broadened to S$4.0b and 10,000 apartment units respectively.

Consistent set of 2Q14 results

For 2Q14, ART delivered a 13.8% YoY increase in revenue to S$88.1m and 8.3% rise in distributable amount to S$33.5m. This was due mainly to incremental contribution from its acquisitions over the past year and stronger performance from its existing properties, especially those in United Kingdom, Spain and Belgium. DPU for the quarter was down 10.6% to 2.19 S cents, but was expected given the larger unit base resulting from the Dec 2013 rights issue and one-off item amounting to S$4.0m in 2Q13. For 1H14, DPU of 3.94 S cents formed 49.3% of our full-year forecasts, well within our expectations.

Improvement expected in 2H14

Looking into 2H14, management expects its portfolio to improve from 1H. We believe a seasonal uplift, coupled with the completion of its asset enhancement initiatives at several of its SRs such as Ascott Raffles Place Singapore, is likely to drive ART’s RevPAU upwards, which stood at S$137 (down 3.5% YoY) in 2Q14. Beyond this, we understand that plans for the upgrading of Somerset Ho Chi Minh City and several properties in China are currently underway, which should also command better daily rates post renovation. We now tweak our FY14 projections to factor the most recent results. However, there is no change to our fair value of S$1.33. Maintain BUY on ART.

Source: OCBC Research - 26 Aug 2014