• 4Q17 DPU flat
• FV increases to S$1.16
• Maintain HOLD

4Q17 Results Within Expectations

Ascott Residence Trust’s (ART) results were within expectations. 4Q17 revenue increased 6% YoY to S$134.5m. This increase of S$7.8m was mainly contributed by S$11.2m of additional revenue from the 2017 acquisitions, partially offset by a S$3.3m loss in revenue from the divestments in Japan and China. Gross profit increased a corresponding 6% to S$61.8m.

DPU was flat YoY at 2.04 S cents for the quarter. Distributions to unitholders this quarter included a one-off partial distribution of the gains from the divestment of Citadines Biyun Shanghai and Citadines Gaoxin Xi’an of S$6.5m. FY17 DPU came up to 7.09 S cents.

Portfolio RevPAU for Mgt Contracts Grew 5% YoY

As a whole, ART’s portfolio RevPAU for 4Q17 grew 5% YoY. Standouts include Belgium and the Philippines which saw RevPAU growth of 22% and 13% YoY respectively in local currency terms. In contrast, 4Q17 RevPAU fell 5-6% YoY in Japan, the United States, and Indonesia. Notably, ART’s Singapore RevPAU clocked a 6% increase to S$185, boosted by higher corporate demand, which fed into both ADR and occupancy growth. For FY18, ART management is still cautious of any residual effect of the injection in the local hotel supply in 4Q17.

Comparatively, we are more bullish on the supply-demand dynamics for Singapore serviced residences in 2018 and take ART’s 6% growth in 4Q17 as an indication of a rebound – which supports our Buy thesis for Far East Hospitality Trust (FEHT).

Trading at 5.5% FY18F Yield on 26 Jan Closing Price

We continue to like ART’s portfolio of assets in prime locations, its robust geographical diversification and active portfolio rebalancing. In addition, we find that ART’s strong sponsor support lends credibility to the long-term portfolio quality of the REIT. The extensive pipeline of sponsor assets such as the newly launched “lyf” brand – a co-working serviced residence concept targeted at millennials – will continue to offer ART opportunities to stay a step ahead of the other hospitality asset owners.

For these reasons, we lower our cost of equity from 7.5% to 7.3%. After rolling our estimates forward and other adjustments, our fair value increases from S$1.11 to S$1.16. Against the closing price on 26 Jan, ART is trading at 5.5% FY18F yield.

Source: OCBC Research - 29 Jan 2018