Singapore Company Focus

Ascendas Hospitality Trust Refer to important disclosures at the end of this report

Bloomberg: ASCHT SP | Reuters: ASHP.SI

DBS Group Research . Equity

11 May 2015

BUY S$0.71 STI : 3,452.01

Recent headwinds priced in

(Upgrade from HOLD) Price Target : 12-Month S$ 0.73 (Prev S$ 0.68) Reason for Report : 4Q15 Results, Rating/TP upgrade Potential Catalyst: Further acquisitions Where we differ: In line with consensus



4Q15 DPU of 1.25 Scts in line



Growth in tourist arrivals to power Australian and Japanese properties



Costs of unwinding of cross currency swaps no longer a drag and weakness in AUD/JPY priced in



Upgrade to BUY, TP raised to S$0.73

Analyst Mervin SONG CFA +65 6682 3715 [email protected] Derek TAN +65 6682 3716 [email protected]

Price Relative S$

Relative Index

1.2

220

1.1

200 180

1.0

160

0.9

140 120

0.8

100 0.7 0.6 Jul-12

80 60 Jan-13

Jul-13

Jan-14

Ascendas Hospitality Trust (LHS)

Forecasts and Valuation FY Mar (S$ m) Gross Revenue Net Property Inc Total Return Distribution Inc EPU (S cts) EPU Gth (%) DPU (S cts) DPU Gth (%) NAV per shr (S cts) PE (X) Distribution Yield (%) P/NAV (x) Aggregate Leverage (%) ROAE (%) Distn. Inc Chng (%): Consensus DPU (S cts): Other Broker Recs:

2014A 214 84 17 55 0.7 (67) 5.5 28 76.9 98.0 7.8 0.9 35.5 0.9

Jul-14

Jan-15

Relative STI INDEX (RHS)

2015A 227 93 29 56 1.7 137 5.1 (8) 74.2 41.3 7.1 1.0 37.2 2.3

2016F 222 91 34 66 3.1 79 5.9 16 71.6 23.1 8.3 1.0 37.8 4.2

2017F 227 92 36 66 3.2 3 5.9 0 69.2 22.4 8.3 1.0 38.4 4.5

B: 0

1 6.0 S: 1

1 6.0 H: 1

ICB Industry : Real Estate ICB Sector: Real Estate Investment Trusts Principal Business: A-HTRUST is a stapled group comprising Ascendas Hospitality Business Trust (A-HBT) and Ascendas Hospitality REIT (A-HREIT), established to invest in a diversified portfolio of hospitality assets in Asia, Australia and New Zealand.

Source of all data: Company, DBS Bank, Bloomberg Finance L.P

www.dbsvickers.com ed: JS / sa: JC

4Q15 results in line. Ascendas Hospitality Trust (ASCHT)’s 4Q15 DPU rose 3% y-o-y to 1.25 Scts, in line with expectations. The improvement was attributed to the doubling of RevPAR at Oakwood Apartments Ariake Tokyo to JPY8,485 and decent performance from its Australian portfolio (4Q15 RevPAR up 5% to A$154). This was partially offset by lower contribution from China due to intense competition (RevPAR down 1% to Rmb283), higher sales commissions and lower accruals for staff bonuses last year. For the full year, DPU came in at 5.02 Scts, down 8% y-o-y, which was caused by declines in the AUD/JPY exchange rates and costs associated with the unwinding of ASCHT’s cross currency swap (CCS). On the back of higher valuations of the Australian and Japanese properties, NAV per share was S$0.74, with gearing falling to 37.2%. Brighter prospects ahead. Going forward, we expect the growing number of international visitors to continue to boost ASCHT’s properties in Australia and Japan. Combined with lower than expected overheads, we raise our FY16-17F DPU by 1% each and lift our DCF-based TP to S$0.73 from S$0.68. In addition, with no headwinds from the unwinding of the CCS that was completed in Oct14, we project a 16% rebound in FY16 DPU. While the weak AUD and JPY is a dampener, we believe this has largely been priced in, as we have imputed AUD/SGD (1.0) and SGD/JPY (90) rates which are already at or below the current spot FX rates. Upgrade to BUY. With ASCHT trading below its NAV per share of S$0.74 and offering one year total returns of 12% (4% upside to our revised TP of S$0.73 and attractive 8.3% yield), we upgrade our recommendation to BUY. At A Glance Issued Capital (m shrs) Mkt. Cap (S$m/US$m) Major Shareholders Ascendas Pte Ltd (%) DBS Bank (%) Jingquan (%) Free Float (%) Avg. Daily Vol.(‘000)

1,114 791 / 595 26.2 5.3 5.2 63.3 1,095

Company Focus Ascendas Hospitality Trust

INVESTMENT THESIS Profile A-HTRUST is a stapled group comprising Ascendas Hospitality Business Trust (A-HBT) and Ascendas Hospitality REIT (AHREIT), established to invest in a diversified portfolio of hotel assets in Asia, Australia and New Zealand.

Rationale Healthy Australian performance is sustainable  We believe the Australian portfolio (58% of FY15 NPI), especially hotels in Sydney and Melbourne, will continue to underpin A-HTRUST’s growth outlook. This is mainly due to increasing tourist arrivals into Australia and the limited supply of new hotels in Sydney and Melbourne. These drivers should also offset any weakness experienced in the Brisbane hotels which are facing more competition. Boost from Japan  Similar to the ASCHT’s Australian properties, the trust’s Japanese portfolio should benefit from the growing number of international visitors on the back of the weaker JPY. Additional upside, could also come from the appointment of a new operator for its Osaka property and associated refurbishment programe.   Currency headwinds largely priced in  While the weak AUD and JPY remain a challenge, we believe this has largely been priced in, as we have imputed AUD/SGD (1.0) and SGD/JPY (90) rates which are already at or below the current spot rates. .  

Valuation We with ASCHT trading below its NAV per share of S$0.74, expected 16% rebound in DPU and projected 12% one year total return (4% upside to our revised DCF-based TP of S$0.73 and attractive 8.3% yield), we upgrade our recommendation to BUY from HOLD.

Risks Interest rate risk  Any increase in interest rates will result in higher interest payments, which will result in lower distribution per unit (DPU) for unitholders.   Supply risk  Any increase in the number of hotel rooms could limit income growth for the REIT, as hotels may have to lower their room rates in order to remain competitive and maintain high occupancies.   Poor execution of asset enhancement initiatives  REIT managers occasionally embark on asset enhancement initiatives (AEI) for their properties, with the rationale that they can charge higher rates per room if they spruce up the rooms or add new facilities. If the above fails to materialise, revenue, distribution income and DPU would be affected.  

Source: DBS Bank

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Company Focus Ascendas Hospitality Trust

Income Statement (S$ m) FY Mar Gross revenue Property expenses Net Property Income Other Operating expenses Other Non Opg (Exp)/Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Net Income Tax Minority Interest Preference Dividend Net Income After Tax Total Return Non-tax deductible Items Net Inc available for Dist. Growth & Ratio Revenue Gth (%) N Property Inc Gth (%) Net Inc Gth (%) Dist. Payout Ratio (%) Net Prop Inc Margins (%) Net Income Margins (%) Dist to revenue (%) Managers & Trustee’s fees to sales %) ROAE (%) ROA (%) ROCE (%) Int. Cover (x)

Source: Company, DBS Bank

Page 3

2013A

2014A

2015A

2016F

2017F

138 (90) 48 (25) 5 (10) (16) 11 (2) 0 0 9 9 26 35

214 (131) 84 (41) (14) (15) 0 14 (8) 0 0 7 17 38 55

227 (134) 93 (36) (15) (17) 0 28 (10) 0 0 18 29 38 56

222 (131) 91 (36) 0 (17) 0 38 (3) 0 0 34 34 31 66

227 (135) 92 (35) 0 (18) 0 39 (4) 0 0 36 36 31 66

N/A nm nm 100.0 35.0 6.5 25.2

55.5 73.4 (25.3) 100.0 39.0 3.1 25.5

6.0 11.8 177.5 100.0 41.1 8.1 24.8

(2.4) (3.0) 86.0 95.0 40.8 15.5 29.7

2.2 1.1 3.6 95.0 40.4 15.7 29.2

18.3

19.0

15.8

16.2

15.5

N/A N/A N/A 2.3

0.9 0.5 1.8 2.9

2.3 1.3 3.0 3.3

4.2 2.4 3.9 3.1

4.5 2.5 4.1 3.1

Improvement in net income in FY16 due to growth in the Australian and Japanese properties as well as the absence of costs from the unwinding of cross currency swaps, completed in FY15.

Net Property Income and Margins S$ m

100 90 80 70 60 50 40 30 20 10 0

43.2% 41.2% 39.2% 37.2% 35.2% 33.2% 2013A

2014A

2015A

Net Property Income

2016F

2017F

Net Property Income Margin %

Company Focus Ascendas Hospitality Trust

(1) (2) 66 40.2 100.0

6 6 (76) 40.3 100.0

5 12 11 42.9 100.0

(8) (11) 147 41.5 100.0

Balance Sheet (S$ m) FY Mar

2013A

2014A

2015A

2016F

2017F

Investment Properties Other LT Assets Cash & ST Invts Inventory Debtors Other Current Assets Total Assets

211 815 62 1 22 2 1,112

516 763 72 1 8 6 1,366

618 734 91 0 10 6 1,460

622 707 92 0 9 6 1,437

625 682 90 0 10 6 1,414

ST Debt Creditor Other Current Liab LT Debt Other LT Liabilities Unit holders’ funds Minority Interests Total Funds & Liabilities

1 37 11 391 10 661 0 1,112

0 31 9 485 45 795 0 1,366

72 32 6 472 52 826 0 1,460

72 31 8 472 52 802 0 1,437

72 32 8 472 52 778 0 1,414

Non-Cash Wkg. Capital Net Cash/(Debt) Ratio Current Ratio (x) Quick Ratio (x) Aggregate Leverage (%) Z-Score (X)

(24) (331)

(26) (413)

(21) (452)

(23) (452)

(24) (453)

1.7 1.7 35.3 0.6

2.2 2.1 35.5 0.9

1.0 1.0 37.2 0.9

1.0 1.0 37.8 0.9

1.0 0.9 38.4 0.9

40% 35%

20

30% 15

25% 20%

10

15% 10%

5

5% 0%

0

Net Property Income

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Net Property Income Margin %

Aggregate Leverage 40.0% 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 2013A

Source: Company, DBS Bank

4Q2015

(5) (6) 1,786 41.0 100.0

45%

3Q2015

55 (32) 23 (9) 0 (4) 0 12 (5) 0 6 14 10 14

2Q2015

60 (34) 26 (17) 0 (4) 0 5 (2) 0 3 3 12 14

1Q2015

56 (34) 23 (16) 0 (4) 0 3 (1) 0 2 2 13 14

4Q2014

53 (32) 21 (8) 1 (4) 0 11 (1) 0 10 10 4 14

50%

25

3Q2014

54 (32) 22 (7) (1) (4) 0 9 (3) 0 6 16 6 12

30

2Q2014

4Q2015

1Q2014

3Q2015

4Q2013

Gross revenue Property expenses Net Property Income Other Operating expenses Other Non Opg (Exp)/Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Net Income Tax Minority Interest Net Income after Tax Total Return Non-tax deductible Items Net Inc available for Dist. Growth & Ratio Revenue Gth (%) N Property Inc Gth (%) Net Inc Gth (%) Net Prop Inc Margin (%) Dist. Payout Ratio (%)

Net Property Income and Margins 2Q2015

3Q2013

Quarterly / Interim Income Statement (S$ m) FY Mar 4Q2014 1Q2015

2014A

2015A

2016F

2017F

Company Focus Ascendas Hospitality Trust

Cash Flow Statement (S$ m) FY Mar Pre-Tax Income Dep. & Amort. Tax Paid Associates &JV Inc/(Loss) Chg in Wkg.Cap. Other Operating CF Net Operating CF Net Invt in Properties Other Invts (net) Invts in Assoc. & JV Div from Assoc. & JVs Other Investing CF Net Investing CF Distribution Paid Chg in Gross Debt New units issued Other Financing CF Net Financing CF Currency Adjustments Chg in Cash Operating CFPS (S cts) Free CFPS (S cts)

Distribution Paid / Net Operating CF 2013A

2014A

2015A

2016F

2017F

11 21 0 (8) (10) (24) (11) (729) 0 0 0 0 (729) (9) 114 694 0 799 0 59

14 27 (3) 0 12 17 68 (300) 0 0 1 (24) (323) (52) 120 198 0 266 3 13

28 28 (7) (3) 7 2 56 (110) 0 0 1 (10) (119) (57) 86 49 0 78 1 16

38 27 (1) (1) 0 4 66 (4) 0 0 0 0 (4) (63) 0 0 0 (63) 0 0

39 26 (3) (1) 1 4 65 (4) 0 0 0 0 (4) (63) 0 0 0 (63) 0 (1)

(0.1) (184.3)

6.1 (25.3)

4.5 (5.1)

6.0 5.6

5.8 5.5

0.9 0.7 0.5 0.3 0.1 -0.1

2013A

2014A

-0.3

Source: Company, DBS Bank

Target Price & Ratings History 0.81

S$

0.79 0.77

2

0.75 0.73 0.71

1

3

4

0.69

6

0.67

5

0.65 0.63 May-14

Sep-14 Note

Source: DBS Bank

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Jan-15

: Share price and Target price are adjusted for corporate actions.

S.No.

Date

1: 2: 3: 4: 5: 6:

16 May 14 14 Aug 14 07 Nov 14 27 Nov 14 09 Feb 15 09 Apr 15

Closing Price 0.73 0.76 0.72 0.70 0.69 0.70

Target Price 0.77 0.77 0.72 0.72 0.70 0.68

Rating Hold Hold Hold Hold Hold Hold

2015A

2016F

2017F

Company Focus Ascendas Hospitality Trust

DBS Bank recommendations are based an Absolute Total Return* Rating system, defined as follows: STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame) BUY (>15% total return over the next 12 months for small caps, >10% for large caps) HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps) FULLY VALUED (negative total return i.e. > -10% over the next 12 months) SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame)

Share price appreciation + dividends GENERAL DISCLOSURE/DISCLAIMER This report is prepared by DBS Bank Ltd. This report is solely intended for the clients of DBS Bank Ltd and DBS Vickers Securities (Singapore) Pte Ltd, its respective connected and associated corporations and affiliates (collectively, the “DBS Vickers Group”) only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii) redistributed without the prior written consent of DBS Bank Ltd. The research set out in this report is based on information obtained from sources believed to be reliable, but we (which collectively refers to DBS Bank Ltd., its respective connected and associated corporations, affiliates and their respective directors, officers, employees and agents (collectively, the “DBS Group”)) do not make any representation or warranty as to its accuracy, completeness or correctness. Opinions expressed are subject to change without notice. This document is prepared for general circulation. Any recommendation contained in this document does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. This document is for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate independent legal or financial advice. The DBS Group accepts no liability whatsoever for any direct, indirect and/or consequential loss (including any claims for loss of profit) arising from any use of and/or reliance upon this document and/or further communication given in relation to this document. This document is not to be construed as an offer or a solicitation of an offer to buy or sell any securities. The DBS Group, along with its affiliates and/or persons associated with any of them may from time to time have interests in the securities mentioned in this document. The DBS Group may have positions in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and other banking services for these companies. Any valuations, opinions, estimates, forecasts, ratings or risk assessments herein constitutes a judgment as of the date of this report, and there can be no assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments. The information in this document is subject to change without notice, its accuracy is not guaranteed, it may be incomplete or condensed and it may not contain all material information concerning the company (or companies) referred to in this report. The valuations, opinions, estimates, forecasts, ratings or risk assessments described in this report were based upon a number of estimates and assumptions and are inherently subject to significant uncertainties and contingencies. It can be expected that one or more of the estimates on which the valuations, opinions, estimates, forecasts, ratings or risk assessments were based will not materialize or will vary significantly from actual results. Therefore, the inclusion of the valuations, opinions, estimates, forecasts, ratings or risk assessments described herein IS NOT TO BE RELIED UPON as a representation and/or warranty by the DBS Group (and/or any persons associated with the aforesaid entities), that: (a) such valuations, opinions, estimates, forecasts, ratings or risk assessments or their underlying assumptions will be achieved, and (b) there is any assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments stated therein. Any assumptions made in this report that refers to commodities, are for the purposes of making forecasts for the company (or companies) mentioned herein. They are not to be construed as recommendations to trade in the physical commodity or in the futures contract relating to the commodity referred to in this report. DBS Vickers Securities (USA) Inc ("DBSVUSA")"), a U.S.-registered broker-dealer, does not have its own investment banking or research department, nor has it participated in any investment banking transaction as a manager or co-manager in the past twelve months. ANALYST CERTIFICATION The research analyst primarily responsible for the content of this research report, in part or in whole, certifies that the views about the companies and their securities expressed in this report accurately reflect his/her personal views. The analyst also certifies that no part of his/her compensation was, is, or will be, directly, or indirectly, related to specific recommendations or views expressed in this report. As of the date the report is published, the analyst and his/her spouse and/or relatives who are financially dependent on the analyst, do not hold interests in the securities recommended in this report (“interest” includes direct or indirect ownership of securities). COMPANY-SPECIFIC / REGULATORY DISCLOSURES 1. DBS Bank Ltd., DBS Vickers Securities (Singapore) Pte Ltd (“DBSVS”), their subsidiaries and/or other affiliates have a proprietary position in Ascendas Hospitality Trust recommended in this report as of 31 Mar 2015. 2.

DBS Bank Ltd., DBSVS, DBSVUSA, their subsidiaries and/or other affiliates beneficially own a total of 1% and 5% of any class of common equity securities of Ascendas Hospitality Trust as of 31 Mar 2015.

3.

Compensation for investment banking services: DBS Bank Ltd., DBSVS, DBSVUSA, their subsidiaries and/or other affiliates have received compensation, within the past 12 months, and within the next 3 months may receive or intends to seek compensation for investment banking services from Ascendas Hospitality Trust.

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Company Focus Ascendas Hospitality Trust

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