Ascendas Hospitality Trust is stapled group comprising AHREIT and A-HBT. Its mandate is to invest in incomeproducing hospitality real estate and real estate-related assets in Asia-Pacific region, including the operation and management of the real estate assets.
- A-HTrust’s initial portfolio consists of 10 quality hotels with valuation of c.S$1,057mn.
- At the IPO price of S$0.88, A-HTrust is trading at 8.6% above its book value compared to CDL HT at 29.7% of NAV premium.
- Given the strong sponsor and strategic collaboration with Accor, we opine the stock is fairly value with some potential upsides for the attractive yield of 7.9%.
What is the news?
A-HTrust is scheduled to list on 27 July 2012, 2pm. Approximately S$581.3mn will be raised from the issuance including the over-allotment option. Of which, 86% is uitilised to partially fund the purchase of the properties. Its initial portfolio consists of 10 quality hotels spanning across Australia, China and Japan with 3,482 rooms and a property valuation of c.S$1,057mn. Pre-allotment, the sponsor will retain 35.0% stake in the trust.
How do we view this?
The listing of A-HTrust would bring the number of REITs in SGX to 24 REITs. Certainly, A-HTrust will provide another option for the investment community who believe in the tourism growth story in Australia. Australia hotels in the four cities where A-HTrust has a foothold are well-positioned to rake in higher RevPAR attributable to the limited supply of hotel rooms and proliferation of low-cost carriers to these cities.
The dividend yield of 7.9% for FY13 is compelling to investors who prefer dividend plays especially in the period of low interest rate and high inflation environment given the erratic market climate. Since A-HTrust is a stapled security between REIT and business trust, investors would be assured with 90% payout ratio on the distributable incomes. However, please bear in mind that the distributions may not be relatively stable as the earnings are highly dependent on the hotel performance which is cyclical with the market conditions.
Investment Actions?
At the IPO price of S$0.88, the stock is trading at 8.6% above its book value compared to CDL HT at 29.7% NAV of premium. Given the strong sponsor and strategic collaboration with Accor, we opine the stock is fairly value with some potential upsides for the attractive yield.
Business Overview Ascendas Hospitality Trust (A-HTrust) is a stapled group comprising both Ascendas hospitality real estate investment trust (A-HREIT) and Ascendas hospitality business trust (AHBT), with a mandate to invest in income-producing hospitality real estate or real estate-related assets in Asia Pacific region. A-HBT’s investment policy also includes the operation ad management of the real estate assets.
Its initial portfolio consists of 10 quality hotels spanning across China, Australia and Japan with 3,482 rooms and a property valuation of c.S$1,057mn. Only Ariake Sunroute hotel in Japan is under the master lease while the remaining nine hotels are under management contracts. Of these, Australia makes up the lion’s share in terms of property asset value (67%) and rooms inventory (54%).
Investment highlights
1) One of the first listed pan-Asian+ hospitality: AHTrust’s portfolio is geographically diversified and strategically located in certain key gateway cities across Asia and Australia. Its hotel portfolio consists of economy to up-scale business and leisure hotels, thus providing revenue diversification across geography, hotel classes and clientele. Favourable macroeconomic, hospitality sector fundamentals and healthy demand and supply dynamics are poised to benefit A-HTrust.
2) Independent platform with the ability to engage bestin- class hotel operators: Being independent provides AHTrust with more flexibility to access the widest range of attractive assets that falls within its investment criteria from any seller.
3) Strong growth potential in key markets: Four areas to leverage on the growth potential in key markets. (i) A-HTrust is to identify asset enhancement initiatives to drive revenue growth. Approximately AUD30.0 million will be implemented to refurbish and reposition Australia hotels within the next 12 months post-listing.
(ii) Over 90% of A-HTrust’s gross revenue is under management contracts which offer investor greater exposure to the upside/downside from their operations.
(iii) Right of refusal granted from sponsor and right of first offer granted from Accor will allow the A-HTrust access to the hotel assets under sponsor and hotels in Accor Asia Region (beside India and Australia) whollyowned by Accor or any of its subsidiaries which Accor proposes to sell.
(iv) Clear distribution policy to distribute 100% of its distributable income for the period from the listing date to 31 March 2014 and at least 90.0% of its distributable income thereafter.
4) Established sponsor and strategic partner with pan- Asian footprint: The sponsor is part of Ascendas Pte Ltd, which is an established and one of Asia leading providers of business space solutions with more than 30 years of proven track record. Post-offering, the sponsor will be largest stapled security holder, holding an aggregate of 35% of the total number of stapled securities based on the offering price (assuming the over-allotment option is not exercised). This demonstrates alignment of interest together with other stapled security holders. A-HTrust has a strategic collaboration with Accor, which will allow A-HTrust to benefit from Accor’s expertise in hotel management. A-HTrust grants a right of first offer to Accor to operate and manage such hotels when the vendors choose not to operate and vice-versa.
Risk factors
Risk relating to the properties such as land use rights issues and over-construction in relation to Novotel Bejing Sanyuan and Ibis Sanyuan, loss of sub-lessee, failure of the hotel managers of the hotels under management contracts and amongst others, could have an adverse effect on the business, financial condition, results of operations and prospect of A-HTrust.
Risks affecting the hospitality industry such as condition and outlook of the hospitality and hospitality-related industries, competition, failure to obtain hotel licences and amongst others may affect the operation and result in reduced occupancy rates and room rates. Risks relating to A-HTrust’s operations such as economic and real estate market conditions, changes in regulatory in fiscal and other governmental policies, debt financing risks and amongst others, may affect the operation and result in the loss of recurrent income, and barriers in business expansion.
Risks relating to investing in real estate such as escalating property expenses, illiquidity of real estate investments, compulsory acquisition by authority and amongst others, may have adverse impact to liquidity constraints and income.
Risks relating to an investment in the stapled securities such as variance in forward-looking and actual statements, operating risks of A-HBT, issuance of new stapled securities below net asset value and amongst others may affect the stock price and suffer losses incurred by A-H BT.
General risks relating to Singapore, Australia, Hong Kong, the PRC and Japan such as changes in laws, policies and accounting standards in above countries and amongst others may have significant impact on the presentation of A-HTrust’s financial statements and results of operations.
Risks relating to Australia such as Australian foreign investment regime, changes in taxation regime and amongst others may cause an adverse effect on the business, financial condition, results of operations and prospects of AHTrust.
Risks relating to Japan such as major catastrophes over the years, highly dependent on Japan asset manager and amongst others could have material adverse effect on the business, financial condition, results of operations and prospects.
Risks relating to the PRC such as uncertainties in legal system, changes in foreign exchange regulations in the PRC, PRC regulatory control and amongst others could disrupt the operations and business of the PRC property companies and the business, financial condition and results of operations of A-HTrust could be materially and adversely affected.
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