Growth-stability Balance From Diversification…

• Ascott Residence Trust (ART)’s globally diversified serviced residences offer both stability and growth, in our view. DPUs should be supported by fixed leases in its European markets and mostly variable income in Asia and its recently-acquired US properties.
• We also see acquisition growth potential from its sponsor’s strong brands and asset pipeline. Nevertheless, global macros will determine returns and risks for this largest hospitality S-REIT.
• We prefer CDL Hospitality Trusts (SGX:J85) [Rating: BUY; Target Price SGD1.80] and Far East Hospitality Trust (SGX:Q5T) [Rating: BUY; Target Price: SGD0.75] for their greater leverage to an expected Singapore RevPAR rebound.
• Initiate coverage with HOLD and SGD1.15 DDM-based Target Price (COE 7.9%, LTG 2.0%).

… But Growth to Trail Peers

• Acquisitions have boosted Ascott Residence Trust (ART)’s global operations with overseas properties now at 81% of its AUM and 88% of gross profits

Upside Potential From Acquisition Prospects

• Ascott Residence Trust has executed well and will likely continue to deliver growth via acquisitions and AEI

Swing Factors 

Upside 

• Earlier-than-expected pick-up in corporate demand. 
• Better-than-anticipated RevPAUs. 
• Accretive acquisitions where cap rates exceed cost of funds, or divestments at low cap rates which unlock asset values. 

Downside 

• Sizeable increases in SR room supply without commensurate growth in demand. 
• Deterioration in global economy, resulting in declines in RevPAUs. 
• Significant FX volatility could impede hedging and affect DPUs. 
• Sharper-than-expected rise in interest rates could increase cost of debt and affect earnings, with higher cost of capital lowering valuations. 

Source: Maybank Kim Eng Research - 14 Sep 2018