Listed in July 2012, Ascendas Hospitality Trust (A-HTrust) owns a portfolio of hospitality properties located across Asia-Pacific. As at 31 March 2018, A-HTrust’s portfolio was valued at S$1.6 billion.
In this article, I’ll provide an overview of A-HTrust’s latest financial results, updates on its property portfolio, and look at a few valuation metrics to evaluate its investment potential at its current price. Here are 13 things to know about Ascendas Hospitality Trust before you invest.
1. As at March 2017, A-HTrust owned 11 hotels — six in Australia, two in China, two in Japan, and one in Singapore. The hotels in Australia and China are leased under management contracts where A-HTrust earns a variable income from their performance. For its hotels in Japan and Singapore, A-HTrust receives a stable income from master leases where rental rates are fixed. In FY2017, A-HTrust made 57% of its net property income (NPI) from management contracts and the rest from master leases.
2. In 29 January 2018, AHT sold its two hotels in China: Beijing Novotel Sanyuan and Ibis Beijing Sanyuan for RMB1,156.4 million (S$235.4 million). The price is a premium of 101.5% above the latest valuation of RMB574 million as at 31 October 2017, and 178.0% above AHT’s purchase cost of RMB416 million in 2012. Following the disposal, A-HTrust no longer has any properties in China.
3. In 27 April 2018, A-HTrust acquired a 98.7% stake in KY-Heritage Hotel Dongdaemun in Seoul, South Korea for S$89 million. The freehold property is a 3-year old, 4-star hotel located in Dongdaemun, a popular tourist spot in Seoul. A-HTrust will derive income through a master lease arrangement which has both fixed and variable income components. The management estimates a net property yield of 4.1% from KY Hotel.
4. In 15 June 2018, A-HTrust announced the purchase of three hotels in Japan — Hotel WBF Kitasemba West, Hotel WBF Kitasemba East, and Hotel WBF Honmachi — for a total of JPY10.6 billion (S$126.1 million). As I write, the acquisition of the both Kitasemba hotels have been completed, and the purchase of WBF Honmachi will be completed in January 2019. All three hotels are under master lease agreements and are managed by White Bear Family, an established hotel operator in Japan.
5. In 28 November 2018, A-HTrust announced the acquisition its second hotel in Korea, Ibis Ambassador Seoul Insadong, for S$94.5 million. It is a freehold property located close to a major business district in Seoul. A-HTrust will derive income from a master lease with Ambasstel Inc, part of the Ambassador Hotel Group in Korea.
6. After the reshuffle, A-HTrust will now own 14 hotels worth S$1.8 billion. Ninety-three percent of A-HTrust’s assets will be freehold (compared to 73.6% previously) with Park Hotel Clarke Quay in Singapore as the only leasehold asset in the portfolio. The average age of A-HTrust’s hotels will be reduced from 23 years to 17 years. This is because the hotels in China that were disposed were much older and the five hotels A-HTrust acquired in Japan and Korea are brand-new buildings. Weighted average lease expiry under master leases will increase from 10 years to 12 years, and 51% of A-HTrust’s net property income will come from master leases.
7. Construction of the Aurora Melbourne Central has reached 69% completion and is expected to be completed in 2H 2019. A-HTrust acquired the serviced apartments component of the property in December 2015 for A$120 million which comprises 252 serviced apartments located at levels 10 to 32, common facilities at level 9, and a ground floor restaurant. The serviced apartments are named ‘Shama Luxe Aurora Melbourne Central’ and A-HTrust expects to make as much as A$9.1 million in net property income in its first year of operation, translating to an NPI yield of 7.6%.
8. As at 30 September 2018, A-HTrust has total borrowings of S$574.7 million and a gearing ratio of 30.8%. Its weighted average interest cost is 1.9% and its weighted average debt to maturity is 4.0 years. 62.8% and 31.0% of its debt is denominated in Japanese yen and Australian dollars, thus posing a certain degree of foreign exchange risk. 78.3% of its debt are at fixed rates, mitigating any adverse movements in interest rates for the near future.
9. A-HTrust has achieved stable growth in distributable income over the past five years. It has increased from S$54.6 million in 2014 to S$66.2 million in 2018. This is mainly driven by the growth from two hotels in Japan and higher income from Pullman Sydney Hyde Park and Novotel Sydney Central over the period. As such, A-HTrust’s distribution per unit (DPU) has increased from 5.52 cents in 2014 to 5.86 cents in 2018.
10. Since its portfolio reshuffle, A-HTrust has generated S$67.4 million in distributable income over the past 12 months. Trailing 12-month DPU is 5.94 cents, indicating that A-HTrust has sustained its growth in profitability presently.
11. Looking ahead, the management has a pessimistic view of the hospitality market in Sydney due to the new supply of hotel rooms in the city. In Q2 2019, Pullman Sydney Hyde Park and Novotel Sydney Central achieved high average occupancy rates of close to 90% but profits were affected by lower room rates. Meanwhile, A-HTrust’s hotels in Melbourne and Brisbane were affected by the loss of C&E (conferences and events) business and new supply of rooms respectively. The hotels achieved a mid-80% occupancy rate but, likewise, suffered from lower room rates. Therefore, a soft performance from Australia and a weaker Australian dollar pulled back A-HTrust’s performance in Q2 2019. A persistently soft hospitality market in Australia would adversely impact results in the future.
12. Dividend yield: As at 10 December 2018, A-HTrust is trading at S$0.80 per unit. Based on its trailing 12-month DPU of 5.94 cents, its dividend yield is 7.4%. This is slightly above its five-year average of 7.3%.
13. P/B ratio: As at 30 September 2018, A-HTrust had a net asset value of S$1.00 per unit. Thus, its current P/B Ratio is 0.8, which is slightly below its five-year average of 0.84.
The fifth perspective
Ascendas Hospitality Trust has achieved sustainable growth in distributable income and DPU over the past five years. It has reshuffled its portfolio with the aim of renewing its hotel assets and sustaining long-term growth.
Its drawback lies with its Australian portfolio where A-HTrust earns a variable income based on business performance which is expected to remain soft due to rising hotel room inventories in Sydney. This should be offset by growth from the completed acquisitions of Hotel WBF Honmachi and Ibis Seoul in 2019, and the handover of Shama Luxe Aurora Melbourne Central in 2H 2019.
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