Ascott Residence Trust

Ascott Residence Trust (ART): Analysts generally not so keen on the counter post 4Q13 results, which came in below consensus, driven by muted operating performance. The key upside risk would be a potential earnings accretive acquisition that management believes could happen within six months. ART reported 4Q13 DPU of 1.33¢ (-34% y/y) and full year DPU of 8.4¢ (-4%). Excluding the effects from the recent rights issue, 4Q13 and FY13 DPU would have been 1.96¢ and 9.03¢, respectively. For the quarter, revenue rose 11% y/y to $83.9m, boosted by the full year contribution from Madison Hamburg (acquired Nov ’12) and new contributions from the Chinese hospitality and Japan rental housing property assets (acquired Jun ’13). Its properties in Belgium and France also showed growth. Accordingly, unitholders’ distribution expanded 15% to $26.3m. ART’s operating performance however, was lackluster. Revenue per available unit (RevPAU) dipped 7% to $129/day, dragged by weaker performance from the Philippines and Japan (weaker yen), and lower rates from the newly acquired China properties. ART’s aggregate leverage declined to 34.0% at the end 4Q13, from 41.1% in the previous quarter, as it paid down some debt with the Nov rights issue proceeds, though management expects gearing to return to ~40% once it completes a major acquisition that is currently in “advanced negotiations”. Mgt expects the performance of its properties to remain stable, and will continue to focus on its asset enhancement programs for growth. ART is converting 35 studios at Ascott Raffles Place Singapore into one-bedroom apts to serve the demand from long stay guests, and has rebranded Somerset St Georges Terrace Perth into a Citadine property, and is on track to complete the refurbishment of Citadine Ramblas Barcelona and Citadine Toison d’Or Brussels. In 1H14, it will begin the refurbishment of Somerset Olympic Tower Tianjin and the second phase of renovation for Somerset Xuhui Shanghai. ART trades at 0.9x P/B and offers 6.8% yield. Latest broker ratings: Credit Suisse maintains Neutral with TP $1.31 (from $1.42) Daiwa maintains Hold with TP $1.25 StanChart maintains Underperform with TP $1.19