ASCOTT RESIDENCE TRUST

ASCOTT RESIDENCE TRUST | SELL

TARGET PRICE: $1.00

JULY 25 CLOSE: $1.14

OCBC Investment Research, July 25

Ascott Residence Trust's (ART) Q2 revenue rose 6 per cent y-o-y to $130.5 million, while DPU (distribution per unit) was flat at 1.84 cents or 27 per cent of our initial full-year forecast.

DPU for the first half of the year came up to 47 per cent of our full-year forecasts, which is within expectations.

ART remains the largest hospitality S-Reit by market cap, with a diversified base of quality assets in gateway cities. Operationally, we like ART for the strong brand recognition of its assets and the resilient nature of its portfolio.

Additionally, gearing stands at a reasonable rate of 35.7 per cent as at June 30, with about 84 per cent of ART's total borrowings on fixed interest rates.

However, we remain cautious in light of the rising interest rate environment, given that investors may demand higher yield from bond-like assets.

We also see muted DPU growth ahead, in the low single-digits for FY2019.

Our cost of equity increases from 7.3 per cent to 8 per cent, following which our fair value drops from $1.14 to $1.00.

Against July 24's close, ART is trading at 6 per cent FY18F yield, around one standard deviation below its five-year average.

We downgrade ART from Hold to Sell as at July 24's close.

Educator Index

Archive

2018
September
August
July
June
May
April
March
February
January