Organic weakness and lower than expected income from recent buys to blame for ART's disappointing 1Q

Organic weakness and lower than expected income from recent buys to blame for ART's disappointing 1Q

PC Lee
19/04/18, 11:42 am

SINGAPORE (Apr 19): Analysts were slightly disappointed with Ascott Residence Trust’s 1Q results which came in weaker than expected.

Revenue increased by $1.5 million or 1.4% y-o-y to $112.8 million mainly due to $8.3 million additional revenue from last year’s acquisitions, offset by a $4.0 million decrease in revenue from divestments and another $2.8 million from existing properties.

Last year, ART had acquired two German assets in May, its third US property in August, and Ascott Orchard Singapore in Oct.

Overall, 1Q18 distributable income increased 16.1% to $29.2 million, a figure which includes a one-off realised exchange gain of $1.6 million.

In a Thursday report, OCBC analyst Deborah Ong says the 7% y-o-y RevPAU decline for ART’s Singapore assets took her by surprise, especially after a 6% y-o-y increase in 4Q17.

From what Ong understands, tighter restrictions on employment pass issuance and generally less corporate travel has affected the demand for long-term stays. Looking ahead, management still remains cautious on corporate demand locally.

After adjustments, OCBC's fair value drops slightly from $1.16 to $1.14 while maintaining its "hold" on the REIT.

CIMB considers ART's 1Q18 DPU to be a slight miss as first quarter is seasonally the weakest.

Adjusting for the realised forex gain of $1.6 million, 1Q18 DPU would have registered a 9% y-o-y improvement.

Analyst Yeo Zhi Bin says ART's results continued to be a mixed bag with particular organic weakness in Japan, the Philippines, Vietnam and the US. China achieved healthy operating performance.

Gross profits from Japan fell 29% y-o-y due to the divestment of 18 rental housing properties and 7% drop in RevPAU due to keen competition and new supply. The Philippines slid 30% y-o-y due to ongoing renovation of Ascott Makati. Vietnam decreased 9% y-o-y on weaker demand. In the US, same-store RevPAU decreased 4% y-o-y due to ongoing renovation of Sheraton Tribeca and keen competition. Otherwise, China improved 4% y-o-y, despite the divestments. Singapore was soft with RevPAU falling 7% y-o-y.

"We reduce our FY18-19 DPU by 3.6-5.2% to factor in the organic weakness," says Yeo. CIMB has a "hold" with $1.14 fair value on the stock.

UOB Kay Hian saw the decline as largely due to an enlarged unit base from the $442.7 million rights issue to mainly fund the acquisitions of Ascott Orchard Singapore and German properties, and lower-than-expected income streams from these assets.

"Results were below our and consensus expectations, with 1Q18 DPU representing 18.6% of full-year forecasts" says analyst Vikrant Pandey. UOB has a "hold" with a $1.23 target price.

On the contrary, DBS is maintaining its "buy" call on ART with a revised target price of $1.30.

Analyst Mervin Song believes the recent share price correction has been overdone as investors have ignored the conservative valuation of ART’s portfolio, now pricing it at a discount to book.

Song says ART's DPUs should be bottoming out as it gets aggressive selling properties with "limited growth" prospects. ART would then put the proceeds into better-yielding assets, helping earnings and unitholder payouts.

More importantly, ART's ability to sell its properties above book value while reducing its reliance on equity raising to drive growth, warrants ART to trade above its book value, adds Song.

As at 11.37am, units of ART are trading at $1.14 giving it 6% FY18 yield.

Ex-remisier Ng denies being coached; RHB trader Alex Chew admits to telling the whole truth only in third statement

SINGAPORE (Apr 23): In Day Six of the trial of John Soh Chee Wen, the defence wrapped up their cross examination of the prosecution’s first witness, former OCBC Securities remisier Ng Kit Kiat. Ng had on Monday admitted to having performed trades without third-party authorisation. The trades performed without third-party authorisation included those based on orders given by a certain Ang Cheau Hoon Alice and Kent Eng Peng Huat, both of whom are remisiers at UOB Kay Hian, for accounts held by Ang's husband Poh Sian Hong as well as Eng's wife Yew Yong Mei. When asked by Soh’s defenc....

Singapore's pre-election cabinet change sets Heng up for top job

(Apr 23): Singapore’s Finance Minister Heng Swee Keat was promoted to deputy prime minister on Tuesday, a move that further positions him to succeed Prime Minister Lee Hsien Loong. Heng will become Lee’s deputy on May 1 while retaining the finance post, the prime minister’s office said in an emailed statement. He will also continue chairing the Future Economy Council and National Research Foundation. The sole cabinet promotion bolsters the odds that 57-year-old Heng will be the ruling People’s Action Party’s choice for prime minister after the general elections, which may come ....

OUE dumps stake in Nuvest Capital with no profit or loss

SINGAPORE (Apr 22): OUE announced it had sold its 33% stake in Nuvest Capital for US$1 million ($1.36 million). The buyer was Aje Kumar Saigal who owns the other 67% of Nuvest Capital. OUE acquired its 33% stake in Nuvest Capital in 2015 for US$1 million, so it has neither made a gain nor a loss. But in 2014, OUE invested US$200 million in Nuvest Real Return Fund which is managed by Nuvest Capital. Last Nov, OUE’s executive chairman had told analysts that the company plans to redeem the fund soon as it had not been profitable. In its FY2014 annual report, OUE's investment in t....