Thursday, September 27, 2012

Superior quality makes Ascott a favourite

• 5.1% SG inflow CAGR during 2012-2014
• Change in corporate contract pattern
• Chosen locations

The Coming serviced residence inflow

As per CBRE, an approximate 7 serviced residences with around 783 serviced residence units are estimated to get into the market of Singapore by the last few months of 2014.  Bringing the possible inflow to more than 5,765 units by 2014, corresponding a 5.1% CAGR on 2011 numbers. Even though this may be overall much more than the percent at which hotel room inflow is estimated to rise during the same period (4.6% p.a., see our  CDLHT report dated 27 Aug), Ascott Residence Trust can see that the capturing rates for serviced residences in Singapore are much prominent than those for hotels on an average. Serviced residences had approximate capturing of 91.8% for  2011 (CBRE), against the approximate of 86% for hotels (STB), and hence, it must be able to cope in a better fashion due to increase in supply.

Change in the signing pattern of contracts
ART’s Singapore properties had a major role to play in the 18.7% of 1H12 gross
profit. On having a word with the management, Ascott Residence Trust learned that a few corporate are preferably  choosing to stay for the same period as they did before in the Singapore properties, even as they are  starting afresh with shorter contracts in contradiction to signing longer contracts. Though it might somewhat decrease visibility for ART, Ascott Residence Trust can notice that increase approximate values can be laid due to  shorter contracts.

Selecting Nice locations

As per Ascott Residence Trust, ART’s Singapore properties will possess as opposed to rising upcoming serviced residence inflow given their superior quality, branding
and nice locations. Somerset Liang Court and Citadines Mount Sophia
are at such locations (districts) that are not predicted to get any increased inflow or supply during 2012 and 2014. On the contrary, Dorsett Residence, that is to be situated nearby to the Outram Park MRT. This will give provide more or less competition to Ascott
Raffles Place, the latter has the superior location in the core of the CBD. This can be one crucial factor to look for. Considering the extra Buyer’s Stamp Duty, that was declared in the last month (December) of the year 2011, we will be seeing more of non-residents occupying the serviced residences as the time passes against purchasing their own residential units.  This should be paid ardent attention to.

Maintenance of Buy Rating
For the purpose of reflecting a weaker euro, Ascott Residence Trust has decided to decrease our fair value from S$1.34 to S$1.30. Perhaps, for the steady maintenance of our BUY rating.
Overall these are the changing trends in the market and we have been able to cope up with these changes well. As far as our knowledge is concerned the serviced residency market will go through some more changes in the coming time. Nevertheless, these main changes will shape up more or less of Singapore’s serviced residency market.

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