• 3Q15 DPU down 1.9% YoY
• Portfolio RevPAU grew 10.2% YoY
• Attractive valuations

3Q15 results within our expectations

Ascott Residence Trust (ART) reported its 3Q15 results which came in within our expectations. Revenue grew 20.8% YoY to S$113.2m, underpinned by additional contribution from acquisitions made in 2014 and this year, coupled with better operating performance from some existing properties. However, DPU slipped 1.9% to 2.07 S cents, as there was a one-off expense of S$1.2m incurred from its S$250m perpetual securities issuance.

Excluding this, ART’s adjusted DPU would instead have grown 1.9% YoY to 2.15 S cents. For 9M15, revenue rose 15.1% to S$301.9m, and this formed 76.6% of our FY15 projection. DPU of 5.92 S cents represented a slight decline of 2.0% (but growth of 2.4% after adjusting for the one-off item as mentioned earlier), and constituted 71.6% of our full-year estimate.

Growth in portfolio RevPAU

Encouragingly, ART’s portfolio RevPAU jumped 10.2% YoY to S$141 in 3Q15 due partly to the recent acquisitions made. On a same store basis, if we exclude the acquisitions, ART’s RevPAU still increased 6% YoY as a result of stronger performance from its assets in China, Indonesia and Vietnam and appreciation of the CNY, USD and VND against the SGD. On a portfolio basis, management has hedged approximately 40% of its estimated FY15 foreign currency distribution income, out of which 80% of its GBP and JPY and 70% of its EUR distribution income have been hedged. As at 30 Sep 2015, ART’s gearing ratio stood at 40.0%, with 76% of its debt on fixed rates.

Maintain BUY

We continue to like ART for its more resilient extended-stay business model as compared to its hospitality peers. Reiterate BUY and S$1.44 fair value estimate on the stock, given its attractive valuations (distribution yield and P/B ratio of 6.6% and 0.87x for FY15F and 7.0% and 0.85x for FY16F, respectively).

Source: OCBC Research - 30 Oct 2015