Ascott Residence Trust (S$1.26) ? Initiating coverage - In all the
right places
ART is a serviced residence real estate investment trust focusing on
serviced residences and rental housing markets
in Asia. The length of stay at ART's properties is above the industry
average, given ART's target market of business
and leisure travellers, as well as residential tenants. This largely
reduces the earnings fluctuations commonly seen
in the short-stay hospitality sector. ART is poised for growth via
acquisitions and growth in revenue per available
unit (REVPAU) from 2008 to 2010. We expect ART to acquire S$400m of
properties in 2008, to reach a target portfolio
of S$2bn by end-2008. In addition, its REVPAU is expected to increase
by 3-8% across the region from 2008 to 2010.
On this basis, we forecast a DPU CAGR of 9% for 2008-10. We initiate
coverage on Ascott Residence Trust with
Outperform and DDM-derived valuation of S$1.74. We arrive at our target
price of S$1.74 using DDM valuation
(discount rate at 8.4%, terminal growth rate at 3%). This represents a
total return of 45% from a forward yield of
6.5% in FY08 and potential price upside of 38%.
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