Logan Reid
Ascendas Hospitality Trust (A-HTRUST) is a real estate investment trust that invests in a diversified portfolio of income-producing real estate used for hospitality purposes and related assets. As of March 2019, A-HTRUST’s portfolio was valued at approximately S$1.8 billion and comprised 14 quality hotels with over 4,700 rooms across Australia, Japan, South Korea, and Singapore. The trust has achieved sustainable growth in distributable income and DPU over the years and has made strategic acquisitions to renew its hotel assets and sustain long-term growth. However, it also faces challenges, such as variable income in Australia due to rising hotel room inventories. Determining if Ascendas Hospitality Trust is a good stock requires a comprehensive analysis of its financial performance, growth prospects, and other metrics.
| Characteristics | Values |
|---|---|
| Investment Strategy | Investing in a diversified portfolio of income-producing real estate used for hospitality purposes |
| Portfolio Value | S$1.6 billion as of 31 March 2018 |
| Number of Hotels | 14 as of 31 March 2019 (previously 11 as of March 2017) |
| Hotel Locations | Australia, Japan, South Korea, and Singapore |
| Hotel Rooms | More than 4,700 |
| Hotel Performance | Variable income in Australia and China; stable income in Japan and Singapore |
| Foreign Exchange Risk | Yes, due to debt denominated in Japanese yen and Australian dollars |
| Net Property Income | Estimated at A$9.1 million for Shama Luxe Aurora Melbourne Central in the first year |
| Net Property Yield | Estimated at 4.1% for KY-Heritage Hotel Dongdaemun in Seoul |
| Gearing Ratio | 30.8% as of 30 September 2018 |
| Weighted Average Interest Cost | 1.9% |
| Weighted Average Debt to Maturity | 4.0 years |
| Sustainable Growth | Yes, in distributable income and DPU over the past five years |
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What You'll Learn
Investment strategy
The investment strategy of Ascendas Hospitality Trust (A-HTRUST) is to invest directly or indirectly in a diversified portfolio of income-producing real estate used for hospitality purposes, as well as related assets. As of March 2019, A-HTRUST's portfolio was valued at approximately S$1.8 billion and included 14 hotels with over 4,700 rooms across Australia, Japan, South Korea, and Singapore.
A-HTRUST's hotels are strategically located in key cities, close to central business districts, transportation hubs, and iconic tourist landmarks. This diversification across prime locations helps to mitigate risks and capture a range of market opportunities.
To maintain sustainable growth, A-HTRUST actively reshuffles its portfolio. For instance, in 2018, it sold its two hotels in China and acquired stakes in properties in Seoul and Melbourne. By renewing its hotel assets and seeking growth opportunities, A-HTRUST aims to sustain long-term distribution income and DPU growth.
A-HTRUST's income structure varies depending on the market. In Australia, it earns variable income based on business performance, while in Japan and Singapore, it receives stable income from fixed-rate master leases. This mix of income types helps balance risk and return.
Additionally, A-HTRUST manages foreign exchange risk due to its debt composition, with a significant portion denominated in Japanese yen and Australian dollars. Overall, A-HTRUST's investment strategy focuses on a well-diversified portfolio of hospitality real estate, sustained growth, and a balanced income approach.
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Portfolio diversification
A-HTRUST's portfolio is well-diversified, valued at approximately S$1.8 billion as of March 31, 2019. It comprises 14 quality hotels with over 4,700 rooms across key cities in Australia, Japan, South Korea, and Singapore. The hotels are strategically located near central business districts, transportation hubs, and tourist landmarks.
The trust has achieved sustainable growth in distributable income and DPU over the years, and its portfolio reshuffling has resulted in a higher proportion of freehold assets and newer hotels, improving the overall quality of the portfolio.
However, there are some considerations regarding the performance of A-HTRUST's Australian portfolio due to rising hotel room inventories in Sydney, which has impacted occupancy rates and profits. On the other hand, the acquisition of hotels in Japan and South Korea has contributed to growth.
Overall, A-HTRUST offers a diversified investment option within the hospitality industry, spreading risk across multiple geographies and property types. Investors should conduct a comprehensive analysis, considering historical data, financial metrics, and market trends, to evaluate the potential risks and returns of investing in A-HTRUST as part of their portfolio diversification strategy.
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Financial performance
As of March 2019, Ascendas Hospitality Trust's (AHT) portfolio was valued at approximately S$1.8 billion. The portfolio includes 14 quality hotels with more than 4,700 rooms, spread across key cities in Australia, Japan, South Korea, and Singapore.
AHT has achieved sustainable growth in distributable income and DPU over the past five years. In March 2017, the trust owned 11 hotels, six in Australia, two in China, two in Japan, and one in Singapore. AHT earns a variable income from the performance of its hotels in Australia and China, which are leased under management contracts. In contrast, it receives a stable income from master leases with fixed rental rates for its hotels in Japan and Singapore.
AHT sold its two hotels in China in January 2018 for RMB1,156.4 million (S$235.4 million), a significant premium above the latest valuation and its purchase cost. Subsequently, in April 2018, AHT acquired a 98.7% stake in the KY-Heritage Hotel Dongdaemun in Seoul, South Korea, for S$89 million. This freehold property is a 4-star hotel located in a popular tourist spot in Seoul, and AHT expects to derive income through a master lease arrangement with fixed and variable income components.
AHT has also been reshuffling its portfolio to renew its hotel assets and sustain long-term growth. It completed the acquisition of Hotel WBF Honmachi and Ibis Seoul in 2019 and is working on the Shama Luxe Aurora Melbourne Central project, expected to be completed in 2H 2019. AHT expects to generate A$9.1 million in net property income in the first year of operation for the Melbourne property, resulting in an NPI yield of 7.6%.
As of September 2018, AHT had total borrowings of S$574.7 million, with a gearing ratio of 30.8%. Its debt is primarily denominated in Japanese yen and Australian dollars, exposing it to foreign exchange risks.
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Acquisition and disposal
Ascendas Hospitality Trust (AHT) has a history of acquiring and disposing of properties to align with its investment strategy. As of March 2017, AHT owned 11 hotels, including six in Australia, two in China, two in Japan, and one in Singapore. However, in January 2018, AHT sold its two hotels in China, the Beijing Novotel Sanyuan and Ibis Beijing Sanyuan, for RMB1,156.4 million (S$235.4 million), marking a premium of 101.5% above the latest valuation and 178% above their purchase cost in 2012. This sale left AHT without any properties in China.
In April 2018, AHT acquired a significant stake in the KY-Heritage Hotel Dongdaemun in Seoul, South Korea. This freehold property is a 4-star hotel located in a popular tourist spot in Seoul. AHT plans to derive income through a master lease arrangement with fixed and variable income components, with an estimated net property yield of 4.1%.
AHT has also made notable acquisitions in 2019, including Hotel WBF Honmachi and Ibis Seoul. Additionally, they have taken over the Shama Luxe Aurora Melbourne Central, a serviced apartment complex in Melbourne, Australia, which is expected to generate substantial net property income.
AHT's portfolio is valued at approximately S$1.8 billion as of March 2019 and comprises 14 quality hotels with over 4,700 rooms. These hotels are strategically located in key cities across Australia, Japan, South Korea, and Singapore, offering proximity to central business districts and iconic tourist landmarks.
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Foreign exchange risk
As of 30 September 2018, A-HTRUST had total borrowings of S$574.7 million, with a gearing ratio of 30.8%. The weighted average interest cost was 1.9%, and the weighted average debt maturity was 4.0 years. Notably, 62.8% of its debt was denominated in Japanese Yen, while 31.0% was in Australian Dollars. This foreign currency exposure poses a degree of foreign exchange risk for the company.
A significant portion of A-HTRUST's debt being in foreign currencies could impact its financial performance. Changes in exchange rates between the Singapore Dollar and the Japanese Yen or Australian Dollar could affect the value of the company's debt obligations and impact its profitability. For example, if the Singapore Dollar weakens against these currencies, the value of the debt increases in Singapore Dollar terms, making it more challenging for the company to service its debt.
However, it is important to note that as of March 2017, A-HTRUST owned 11 hotels across Australia, China, Japan, and Singapore. The hotels in Australia and China were leased under management contracts with variable income, while the hotels in Japan and Singapore provided stable income from fixed rental rates. This diversification of income sources and the mix of variable and fixed income structures can help mitigate foreign exchange risks to some extent.
Additionally, A-HTRUST has achieved stable growth in distributable income over the past five years, increasing from S$54.6 million in 2014 to S$66.2 million in 2018. This growth has been driven by the strong performance of its hotels in Japan and higher income from its properties in Sydney, Australia. The company's distribution per unit (DPU) has also increased from 5.52 cents in 2014 to 5.86 cents in 2018, indicating sustained profitability.
In summary, while there is a degree of foreign exchange risk associated with A-HTRUST's debt structure, the company's diverse portfolio of hotels across the Asia-Pacific region and its stable income streams help mitigate this risk to some extent. Investors should carefully consider this aspect along with other financial metrics and market conditions before making investment decisions regarding A-HTRUST.
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Frequently asked questions
The Trust's principal investment strategy is to invest in a diversified portfolio of income-producing real estate used for hospitality purposes, as well as real estate-related assets.
As of 31 March 2019, the Trust's portfolio was valued at S$1.8 billion.
The Trust has achieved sustainable growth in distributable income and DPU over the past five years.
The Trust's portfolio includes properties in Australia, where it earns variable income based on business performance. This income may remain soft due to rising hotel room inventories in Sydney. Additionally, the Trust has foreign exchange risk due to its debt being denominated in Japanese yen and Australian dollars.
To evaluate the potential of any stock, including Ascendas Hospitality Trust, comprehensive analysis is required. This may include assessing the current share price, historical data, charts, news, and other metrics.
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