Ascott Residence Trust acquisitions to enable high-growth Asian positioning

New properties increase exposure and stability.

According to DBS Vickers Singapore, Ascott Residence Trust's recently unveiled plan to buy 3 serviced residences in China and 11 rental properties in Japan for a S$287.4 million is part of a strategic positioning to take advantage of high growth potential in Asia. In particular, the China purchases will help the property developer break into new cities like Shenyang, while the Japanese purchases solidify its long-term presence in the country.

Here's more from DBS:

Anticipated acquisitions to expand its Asian exposure. Ascott Residence Trust (ART) is proposing to acquire 3 serviced residences properties in China and 11 Rental Housing Properties in Japan for S$287.4m from its sponsor, Ascott Group. The properties will be acquired at a slight discount to valuers’ valuation and the purchase price implies an initial EBITDA yield of 5.4%.

Positioning to high growth Asia. The proposed acquisitions will increase its exposure in Asia to 63% of asset value. The China properties will form close to 60% of the total deal size and will strengthen its presence in Shanghai (Citadines Biyun Shanghai) while expand its footprint into new cities of Shenyang (Somerset Heping Shenyang) and Suzhou (Citadines Xinghai Suzhou). The manager expects its portfolio in China to deliver a RevPAU growth of c5% in FY13. The Japan rental housing properties on the other hand, offers stability as 5 out of the 11 properties are tied to master-leases with tenures of 5-8 years while the remainder are backed by rentals, with tenancies averaging 1-2 years.

Accretive to earnings, BUY with S$1.53 TP. With clarity on the use of its recent placement proceeds, we see an overhang on the stock being removed. Maintain BUY and TP S$1.53 on ART. Based on an EBITDA yield of 5.4%, which is higher than the implied funding cost of 4.9%, DPU is expected to be lifted by c2.9%. Gearing is expected to head up to 41% post.