Ascott Residence Trust

Ascott Residence Trust (ART): ART’s sponsor, the Ascott Limited, wholly owned by CapitaLand, announced a US$600m global serviced residence fund with Qatar Investment Authority (QIA). The investment period is 3 years and the JV includes exclusive deal-flow rights over investments available to the sponsor during the investment period and a right of first offer upon exit granted to ART.

From ART’s perspective, the deal is positive as it allows the sponsor to scale up its asset size faster; a larger asset size represents a larger acquisition pipeline for ART. Moreover, ART’s high conversion rate is encouraging and offers some assurance that it will be able to tap sponsor’s growing development pipeline in the future.

Daiwa maintains its HOLD rating and TP: $1.28. The major uncertainty is the terms and timing of its financing, which are equally important to the DPU accretion of a deal. Note that ART already has a gearing ratio near 40%.