CIMB Report - 18 March 2008

What’s on the table

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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