Press Release

Presentations

Financials

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.

Park Hotel Clarke Quay "poised for imminent sale"

• Park Hotel Clarke Quay is reported to be available for sale at a price tag of close to S$300m
• Price implies up to a price per key of S$900k seems high but reflects optimisim in Singapore as a leading tourist location

The media reported that the 336-room Park Hotel Clarke Quay is "poised for imminent sale" at about S$300m. The buyer is reportedly a REIT, and Ascendas Hospitality Trust is a prime candidate. Park Hotel Clarke Quay is new upscale hotel that was completed in 2009. The hotel is strategically located near the Central Business District and is close to several tourist attractions like Chinatown, Arab Street, and the National Museum, and is within walking distance to Clarke Quay MRT Station and lively drinking hole, Clarke Quay. The hotel has received good reviews by travelers at online travel website Tripadvisor.com. There are other hotels in the vicinity which means there will be competition for guests.There are no further details or related announcements by any REITs.

The price tag and our thoughts

The reported S$300m price tag implies S$900k/key, which seems high but is within expectations given the tight holdings of hotel assets in Singapore and the lack of available hotel assets in good locations in Singapore. Previous transactions in the vicinity included Hotel Grand Pacific, an older hotel that was sold at S$850k-S$900k/key)

Given the positive outlook for Singapore's tourism sector in the medium term – Singapore Tourism Board is targeting to increase visitor arrivals to 17m in 2015 -, Singapore remains one of the most desired hotel investment markets in the region.

Assuming S$260/night RevPAR reported by Upscale hotels (Singapore Tourism Board) and 50% EBITDA margin, the price tag implies EBITDA yields of 5.25%- 5.5%.

It is interesting that Ascendas Hospitality Trust was also mentioned because if successful, this deal would represent its maiden foray into Singapore. But given its exposure in Australia, Japan and China, its portfolio yield (est. 6.6% on book, 6.1% on implied basis) is naturally higher than Singapore’s, and would likely mean dilution for shareholders or the trust would have to take on a larger debt-funded structure in order to make the deal accretive.

Softness Down Under

• 3Q12 results in line
  
• Australian operations remain under pressure; China hotels, the near-term earnings driver
  
• Downgrade to HOLD, TP S$1.03
  

3Q13 results in line.
Ascendas Hospitality Trust’s (A-HTRUST) revenues of S$51.4m was 2.5% below forecasts as its Australian hotels continue to face challenging prospects in a soft operating environment (RevPAR A$129/night, – 7.5% vs forecast) while a weak JPY-S$ marginally impacted the performance of its Ariake Hotel. The strong performance came largely from China (Novotel & Ibis Beijing Sanyuan) which achieved a RevPAR of Rmb378/night, +1.2% y-o-y. Net property income, however, improved by 4.1% against forecasts due to stringent cost measures. Thus, distributable income of S$12.5m (+3.6% above forecasts) translates to a DPU of 1.55 Scts (1.77 Scts after sponsor waiver).

Outlook remains mixed; Australian operations under pressure.
The refurbishment and rebranding exercise that is ongoing at its seven Australian hotels remains on track for completion by Aug13 (1QFY14). We note that occupancy rates have slipped slightly to 79.5% in the midst of a tough operating climate. We note that the industry continues to price rates competitively and thus, A-HTRUST hotels have to follow likewise in order to maintain occupancies. Nevertheless, upon completion in 2H13, we expect the new Accor-branded Australian portfolio to continue to reap the benefits of its refurbishment exercise through room rate hikes and improved margins. Its China hotels, namely Novotel & Ibis Beijing Sanyuan, are expected to continue benefiting from the robust domestic demand for travel into Beijing.

Downgrade to HOLD with revised TP of S$1.03. Our TP is nudged slightly upwards to S$1.03 as we reduce our discount rates but downgrade to HOLD, given limited upside to our TP objective. Upside surprise is likely to hinge on acquisitions that we have not factored in. The stock offers yields of 7.3-7.6%.

Beating IPO forecasts

• DPU of 1.23 Scts (post-sponsor waiver) above IPO forecasts by 2.2%

• Australian refurbishment exercise on track; Novotel Beijing Sanyuan outperformed expectations

• BUY maintained, TP raised to S$0.98 as we roll forward valuations

Highlights

FYP 2Q13 results above IPO forecasts. Ascendas Hospitality Trust (A-HTRUST) revenues and net property income came in at 2.1% and 8.8% respectively, higher than IPO forecasts but within our expectations. The strong performance came largely from China (Novotel Beijing Sanyuan) which achieved a RevPAR of Rmb535/night vs Rmb491 in the prospectus due to seasonally peak quarters. Australia achieved a RevPAR of AUS$135 (-3.1% vs IPO forecasts) due to disruptions from the ongoing planned refurbishment exercise but should remain stable going forward. Net property income margins improved to 33.2% on the back of various cost-efficiency and new operating measures instituted once Accor took over from Mirvac. It should maintain the higher margins going forward. As such, distributable income of S$8.7m (+2.5% yo-y) translates to a DPU of 1.09 Scts (1.23 Scts after sponsor waiver).

Our View

Australian hotels ramping up nicely. The refurbishment and rebranding exercise that is ongoing at its seven Australian hotels remain on track for completion by the middle of 2013 (1QFY14). We note that occupancy rates remain at a high of 84.3% in 2Q13, implying minimal disruptions to other operations. Upon completion in 2H13, we expect the new Accor-branded Australian portfolio to reap the benefits of hike in room rates and operational performance compared to when it was operated by Mirvac.

North Asian Hotels doing well; gearing to head up to 36% by 4QFY13. While Ariake Sunrote in Japan offers a stable earnings base for the trust, Novotel Beijing Sanyuan outperformed initial expectations, due to robust domestic demand for travel into Beijing. The planned purchase of Ibis Beijing Sanyuan Hotel, will be completed as planned in Jan 13. Gearing of 31.7% is expected to head up to c.36% after completion.

Recommendation

BUY maintained, TP S$0.98 based on DCF. We maintain our BUY call, with revised TP of S$0.98 as we roll forward our valuations. Yield of 7.2-8.2% is one of the highest amongst the SREITs.