Ascott Residence Trust (ART) reported its 2Q15 results which missed our expectations. Revenue grew 12% YoY to S$98.7m, underpinned by additional contribution from acquisitions made in 2014; while DPU slipped 5% to 2.09 S cents. However, if we adjust for a one-off item in 2Q14, DPU would instead have increased by 5%. For 1H15, revenue also rose 12% to S$188.7m, and this formed 47.8% of our FY15 projection.

DPU of 3.85 S cents represented a decline of 2% (but growth of 3% after adjusting for the similar oneoff item in 2Q14), and constituted 46.6% of our full-year estimate. ART’s portfolio RevPAU fell 6% YoY to S$129 due to weakness in Singapore and Philippines, coupled with lower average daily rate from properties acquired in 2014.

Looking ahead, we expect ART’s proposed acquisitions of serviced residence properties in Australia and Japan, rental housing properties in Japan, and an extended-stay hotel property in New York to buffer the organic softness and boost its future income streams. Maintain BUY on ART, but we will review our S$1.44 fair value estimate.

Source: OCBC Research - 23 Jul 2015