• 4Q14 DPU +12.8% YoY on adjusted basis
• Hedging strategies in place
• Resilient business model

4Q14 results in-line with our expectations

Ascott Residence Trust (ART) announced its 4Q14 results which came in within our expectations. Revenue increased 13.2% YoY to S$95.0m, while DPU jumped 62.4% to 2.16 S cents. Adjusting for one-off items and a rights issue exercise carried out in Dec 2013, ART’s normalised DPU would have increased 12.8% YoY to 1.76 S cents. For FY14, revenue climbed 12.8% to S$357.2m and formed 100.3% of our estimate. DPU of 8.2 S cents represented a slight decline of 2.4% (normalised DPU +5.8% to 7.61 S cents) but was 0.6% above our forecast.

Watching FX risks closely

As 89.9% of ART’s revenue is derived outside of Singapore, management keeps a close watch on its FX risks, especially in key markets such as Europe, UK and Japan. It has already hedged 70% of its estimated income denominated in Euros in 2015 (at a rate of EUR1 to S$1.63). For its Yen exposure, ART has hedged 20% of its estimated income and has the intention to increase this hedge to ~70%. In terms of capital management, 80% of ART’s total debt is on a fixed rate basis.

Maintain BUY

Looking ahead, although the global macroeconomic environment remains challenging, ART expects its operational performance to remain healthy given its resilient extended-stay business model and geographical diversification. It remains positive on its prospects in Japan given robust occupancy rates and ADR growth in excess of 10% in 2014. ART would be keen to acquire more assets in Japan. China, on the other hand, would be slightly challenging in FY15, but we believe this would be mitigated by contribution from new acquisitions made in FY14. As at 31 Dec 2014, ART’s portfolio comprises 90 properties with 10,502 apartment units spread across 37 cities in 13 countries in Asia Pacific and Europe. We fine-tune our assumptions and roll forward our valuations, thus deriving a higher fair value estimate of S$1.49 (previously S$1.37). Maintain BUY on ART, with the stock trading at FY15F P/B ratio of 0.9x and a distribution yield of 6.6%.

Source: OCBC Research - 25 Jan 2015