Singapore | REITs

Asia Pacific Equity Research

ASCOTT RESIDENCE TRUST | BUY MARKET CAP: USD 1.5B

29 Apr 2015 Company Update

AVG DAILY TURNOVER: USD 1M

EXPECTING A BETTER PERFORMANCE AHEAD

BUY (maintain) Fair value add: 12m dividend forecast

1Q14 DPU up just 0.6% YoY Japan the star performer Lower forecasts but maintain BUY

• • •

Maintain BUY Looking ahead, management has plans to grow its asset portfolio size from S$4.1b to S$6.0b by 2017. We trim our FY15 and FY16 DPU forecasts by 2.3% and 2.5%, respectively, and our fair value estimate consequently drops from S$1.49 to S$1.44. We are maintaining our BUY rating given ART’s still attractive FY15F DPU yield of 6.5%. Key financial highlights FY14

FY15F

357.2

394.4

409.8

-177.0

-196.5

-204.5

Gross profit

161.2

180.2

197.9

205.3

Total distributable amount

114.8

125.6

127.7

130.8

8.4

8.2

8.3

8.4

na

na

8.7

8.8

50.9

50.4

50.2

50.1

Cons. DPU (S cents) Gross profit margin (%) DPU yield (%)

Analysts Andy Wong Teck Ching, CFA (Lead) ● +65 6531 9817 [email protected] Eli Lee ● +65 6531 9112 [email protected] Key information Market cap. (m)

S$1,968 / USD1,492

Avg daily turnover (m)

S$1 / USD1

Avg daily vol. (m)

1.1

52-wk range (S$)

1.19 - 1.32

Free float (%)

54.1

Shares o/s. (m)

1,537.7

Exchange

SGX

BBRG ticker

ART SP

Reuters ticker

ASRT.SI

SGX code

A68U

GICS Sector

Financials

GICS Industry

REITs CapitaLand 45.9%

Top shareholder

Relative total return

1m

3m

12m

Company (%)

2

0

14

STI-adjusted (%)

1

-3

2

Price performance chart

Sources: Bloomberg, OIR estimates

FY16F

316.6

DPU (S cents)

19%

Industry-relative metrics FY13 -155.5

Direct expenses

S$1.28

12m total return forecast

Conditions likely to get better Despite the soft start by ART, we expect a stronger performance by ART ahead, as 2Q and 3Q are the peak periods for its portfolio. While its assets in Dalian and Indonesia were affected in 1Q15 by the downturn in the oil and gas sector, we note that oil prices have since rebounded. Hence, some projects which were previously delayed have now restarted and ART has seen an improvement in occupancy rates in Apr and corporate bookings in May in these areas. Although China would likely remain challenging in 2015, this is partly caused by the ongoing refurbishment at Somerset Xu Hui Shanghai and Somerset Olympic Tower Property Tianjin. Japan was the star performer for ART in 1Q15 (RevPAU grew 17% in local currency terms), and we expect its robust contribution to continue, underpinned by a rebranding exercise carried out on one of its properties and healthy demand from both corporate and leisure guests. Management has hedged 70% of its estimated distribution income denominated in JPY in 2015, while 70% and 80% of its EUR and GBP distribution income have also been hedged, respectively.

Revenue

S$0.083

versus: Current price

1Q15 results fell short of our expectations Ascott Residence Trust (ART) reported 1Q15 results which missed our expectations. Revenue grew 12.0% YoY to S$90.0m, driven by additional contribution from new properties acquired in 2014. This formed 22.3% of our full-year forecast. Excluding acquisitions, we estimate that ART’s gross revenue slipped 3.7% YoY, with the drag coming from China and FX translation impact from a weaker EUR and JPY. Overall portfolio RevPAU dipped 8% YoY to S$114/day, but on a same store basis (excluding the 2014 acquisitions), ART’s RevPAU fell 2%. DPU for 1Q15 inched up by 0.6% YoY to 1.76 S cents, and this made up 20.8% of our FY15F estimate.

Year Ended 31 Dec (S$ m)

S$1.44

6.6

6.4

6.5

6.6

Distr to revenue (%)

36.3

35.2

32.4

31.9

DPU growth (%)

-4.1

-2.4

0.8

1.7 Note: Industry universe defined as companies under identical GICS classification listed on the same exchange. Sources: Bloomberg, OIR estimates

Please refer to important disclosures at the back of this document.

MCI (P) 004/06/2014

OCBC Investment Research Singapore Equities

Exhibit 1: Quarterly financial highlights 1Q15

1Q14

% Chg

4Q14

% Chg

(S$m)

(S$m)

(YoY)

(S$m)

(QoQ)

90.0

80.4

12.0%

95.0

-5.2%

Direct expenses Gross profit

-46.9 43.1

-41.2 39.2

13.8% 10.1%

-49.3 45.7

-4.8% -5.7%

Finance income Finance costs

0.4 -11.8

0.7 -9.0

-41.2% 31.3%

0.5 -12.0

-25.5% -0.9%

Other operating income Manager's management fees

0.0 -4.3

1.0 -3.8

-96.8% 13.9%

5.0 -4.6

-99.3% -7.6%

Other fees Forex gain

-1.2 -2.8

-1.1 2.9

8.7% nm

-1.6 2.8

-20.1% nm

Others Net profit before unrealized gains

-0.2 23.2

-0.2 29.7

-9.9% -21.9%

-0.4 35.6

-44.6% -34.8%

1.4 0.0

0.2 0.0

491.4% nm

-0.1 21.5

nm nm

-5.7 18.9

-5.4 24.0

5.9% -21.4%

-12.5 35.4

-54.4% -46.6%

Revenue

Other charges and items Change in property values Tax Total return after tax Attributable to: Minority interests

1.7

1.7

3.9%

2.3

-25.4%

Unitholders Net effect of non-tax items/other adj

17.2 9.9

22.4 4.3

-23.3% 130.3%

33.0 0.1

-48.1% nm

Total distributable amount Distribution per unit (S Cents)

27.0 1.76

26.7 1.75

1.4% 0.6%

33.1 2.16

-18.4% -18.5%

Source: Company financials

Exhibit 2: ART’s FX risk management

Source: REIT Manager

Exhibit 3: ART’s AEI progress

Source: REIT Manager

2

OCBC Investment Research Singapore Equities

Company financial highlights

Income statement Year Ended 31 Dec (S$ m)

FY13

FY14

FY15F

FY16F

316.6 -155.5 161.2 -44.6 -14.7 105.6 139.5 215.4 208.7 114.8

357.2 -177.0 180.2 -43.3 -17.2 119.0 63.0 130.4 122.5 125.6

394.4 -196.5 197.9 -48.4 -17.6 128.7 0.0 105.5 96.9 127.7

409.8 -204.5 205.3 -51.4 -17.8 132.8 0.0 108.9 99.7 130.8

FY13

FY14

FY15F

FY16F

3,177.0 204.5 122.4 3,585.1 121.7 1,197.1 1,397.9 94.1 2,093.1 3,585.1

3,724.0 192.6 124.4 4,121.9 126.4 1,550.9 1,768.7 247.2 2,106.1 4,121.9

3,725.1 191.6 130.6 4,128.2 126.3 1,570.6 1,788.3 187.3 2,152.6 4,128.2

3,727.0 197.0 131.4 4,136.3 126.6 1,591.1 1,809.1 126.5 2,200.7 4,136.3

Cash flow statement Year Ended 31 Dec (S$ m)

FY13

FY14

FY15F

FY16F

Operating cash flows Acquisitions Investing cash flows Distributions to unitholders Interest paid Financing cash flows Net change in cash Cash at beg of period Translation effects Cash at end of period

152.0 -159.0 -220.4 -107.0 -45.1 148.5 80.2 125.2 -0.8 204.5

152.6 -428.4 -460.6 -116.5 -41.9 298.1 -10.0 204.5 -2.0 192.6

177.7 0.0 -17.9 -127.7 -48.4 -160.7 -1.0 192.6 0.0 191.6

190.3 0.0 -18.6 -130.8 -51.4 -166.2 5.4 191.6 0.0 197.0

Key rates & ratios

FY13

FY14

FY15F

FY16F

DPU (S cents) CFPS (S cents) NAV (S$) DPU yield (%) P/CF (x) P/NAV (x) DPU growth (%) Gross profit margin (%) Distr to revenue (%) Total debt/Total assets (%)

8.4 10.0 1.4 6.6 3.2 0.9 -4.1 50.9 36.3 33.4

8.2 9.9 1.4 6.4 3.2 0.9 -2.4 50.4 35.2 37.6

8.3 11.5 1.4 6.5 2.8 0.9 0.8 50.2 32.4 38.0

8.4 12.2 1.4 6.6 2.6 0.9 1.7 50.1 31.9 38.5

Revenue Direct expenses Gross profit Finance costs Manager's management fees Net profit bef. unrealized gains Change in property values Total return after tax Return attributable to unitholders Total distributable amount

Balance sheet As at 31 Dec (S$ m) Investment properties Cash Other current assets Total assets Current liabilities ex debt Debt Total liabilities Minority interests Unitholders' funds Total equity and liabilities

Source: REIT Manager, OIR forecasts

Company financial highlights

OCBC Investment Research Singapore Equities

SHAREHOLDING DECLARATION: The analyst/analysts who wrote this report holds/hold NIL shares in the above security.

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RATINGS AND RECOMMENDATIONS: - OCBC Investment Research’s (OIR) technical comments and recommendations are short-term and trading oriented. - OIR’s fundamental views and ratings (Buy, Hold, Sell) are medium-term calls within a 12-month investment horizon. - As a guide, OIR’s BUY rating indicates a total return in excess of 10% based on the current price; a HOLD rating indicates total returns within +10% and -5%; a SELL rating indicates total returns less than -5%.

Co.Reg.no.: 198301152E Carmen Lee Head of Research For OCBC Investment Research Pte Ltd

Published by OCBC Investment Research Pte Ltd

Important disclosures