Ascott Residence Trust

Ascott Residence Trust: strong 2Q11 results, with DPU of 2.33cts, +25% yoy, and +16% higher than mgt forecast made in Nov ’10.
RevPAY grew 17% to $140, on the back of double-digit RevPAU growth in Spore, Indonesia, Australia as well as from the UK properties acq in Oct ’10. The weaker mkts were Vietnam and Japan.
Gross margins rose from 46.5% in 1H10 to 55.1% in 1H11, on the back of higher RevPAU and good cost mgt.
Revaluation gains of $83m lift ART book value per share by 4% to $1.33.
ART now trades at 0.9x P/B, 7% yield.

Mgt is keen to acq assets in its sponsor’s China fund (~2k units in Tier 2 and 3 cities) and Ascott Raffles Place in Spore. But pricing and accretion will be key, as the risks of China expansion are high given the existing China portfolio has delivered a mixed performance, and gearing at 40.1% means ART would likely need to raise both debt and equity to make any substantial acqs.

Macquarie keeps at Neutral, raises TP marginally to $1.27 from $1.24.
StanChart keeps Neutral rating and TP $1.20.