A-HTrust – DBSV

Boosted by acquisitions

  • 3Q14 results in line
  • Australian hotel portfolio to underpin growth; extending debt expiry profile to 3.7 years reduce interest rate risks
  • Maintain HOLD, TP revised slightly higher to S$0.76

Highlights

3Q14 results in line. Ascendas Hospitality Trust (A-HTRUST) reported higher revenues and net property income (NPI) of S$56.6m and S$23.4m, which were 10% and 37% higher y-o-y, respectively. The stronger performance was driven by an improved performance of its Australian hotels post asset enhancement (RevPAR was 12% y-o-y higher at A$147/night), supported by contribution from investments (full quarter contribution from Ibis Beijing Sanyuan and recently acquired Park Hotel Clarke Quay in Singapore). Revenues from Ariake Sunroute were weaker due to the depreciation of the JPY against SGD. Thus, distributable income of S$16.6m translates to a DPU of 1.61 Scts (3.9% higher y-o-y), when compared against the 1.55 Scts delivered a year ago (before Sponsor’s distribution waiver).

Our View

Australian operations gaining traction, RevPARs up 12% y-o-y. The refurbishment and rebranding exercises at its Australian portfolio have been substantially completed, resulting in a robust uplift in RevPAR of c.6-18% y-o-y (averaging +12% y-o-y to S$147/night). Occupancies improved by 5 ppts to c.85% in 3Q14. Apart from offering a refurbished new product, the manager also took the chance to tweak the clientele mix towards having a higher corporate base. Looking ahead, the manager expects the Australian portfolio to continue reap the benefits of its refurbishment exercise through room rate hikes and improved margins. For its hotel operations in Asia, the manager expects performance to remain fairly stable, supported by high fixed rent component (Singapore and Japan) , while its China hotels (Ibis and Novotel Beijing Sanyuan) is likely to see continued pressure on room rates.

Reduced refinancing risks; natural hedge for overseas assets. A-HTRUST also refinanced loans expiring in 2014/2015, extending its debt expiry profile to 3.7 years (vs 2.2 years previously), thus AHTRUST will have almost minimal debt up for renewal over the next 2 years. In addition, the manager has also taken up a higher % of debt in foreign currencies to act as natural hedges for their diverse exposure. As a result, average interest cost is expected to inch up slightly to c.3+% (vs 2.9% previously).

Recommendation

HOLD, TP inched up to S$0.76. Our HOLD call is maintained premised on limited upside to our revised TP as we roll forward valuations. Yields of close to 7.7-8.7% are expected to limit downside to share price.