ASCOTT Residence Trust (ART)

ASCOTT Residence Trust (ART) recorded 2Q10 DPU of 1.87 cts which came slightly below street’s estimate. YTD DPU accounts for about 45% of our house’s full year estimate mainly due to a weaker 1Q. In particular, ART’s S’pore portfolio did not fully capture the recovery in REVPAU as a result of the phased refurbishment exercise. Excluding apartment units that were closed, occupancy rate was 90% compared to 70% for the S’pore portfolio.

The units have been re-launched since July and higher REVPAU (+15% yoy) should be achieved in 2H10. Vietnam - the largest income contributor also disappointed due to lower renewal rates. However, we believe the differing recovery pace in different markets shd continue to underpin ART’s income stability. In the near-term, an acquisition is widely expected, with targets possibly being a portfolio of assets in Vietnam, India, China, and S’pore from its sponsor likely to be funded by a debt and equity combo. KE has a Buy rating with TP of $1.35. Share price is likely to be supported by forward yield of 6.9%.