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Ascendas Hospitality Trust: A nibble.

Tuesday, September 16, 2014

This business trust owns hotels in Australia, China, Japan and Singapore. 

Unlike rental income from industrial, commercial or residential properties, for examples, a hotel's income is less stable. 

It has a strong element of seasonality.

As most of Ascendas Hospitality Trust's properties are in Australia, China and Japan, its income is also very much subjected to foreign exchange risks.

Hotel Sunroute Ariake in Tokyo is located in the heart of the Ariake area near the Tokyo Big Sight Convention Center.

To make it more attractive as an investment for income, at its IPO price of 88c a unit, yield was engineered to be higher through a 1 year waiver to income distributions by the sponsor. 

The income forecast was also very optimistic.

To be fair, it was probably a difficult job to provide an accurate forecast and, in July 2012, I said:

"I feel that I need to be conversant in the economies of three countries and the health of their respective tourism sectors to analyse how well they could continue doing. 

"I would also need to take into consideration that income would be collected in three foreign currencies and converted to S$ for distribution to unitholders.

"Foreign exchange rates would affect income in S$ terms.

"So, analysing this Trust and forecasting its future income is somewhat more challenging. It is less straightforward."
(See related post #1)

I do understand that having properties in different countries reduces the risk of concentration. 

However, whether it is worth having to deal with so much foreign exchange risk or not, I am not sure.

The Trust's unit price suffered a big decline when it did an equity fund raising through a placement to raise $50 million to partially fund the purchase of Osaka Namba Washington Hotel Plaza in Japan not too long ago. 

The price? 

68c a unit. 

The number of units in issue increased by 7.1%.

Gearing is estimated to be about 38% while NAV per share is about 74c. 

Its relatively high gearing level could be a source of concern although the Trust does not have any debt due till 2016. 

I do, however, like that more than 83% of the Trust's borrowings are in the local currencies. 

This provides a natural hedge against foreign exchange risk.

Osaka Namba Washington Hotel Plaza

What about the DPU?

Well, although the DPU became more realistic with the expiry of the sponsor's waiver to income distribution, seasonality makes it inaccurate to annualise any one quarter's DPU. 

So, instead, I simply added 4 consecutive quarters' income distributions which gives me a 12 months DPU of 5.5c. 

This is probably more realistic than the forecast of 7.07c during the IPO. 

At a price of 72c a unit, therefore, a realistic distribution yield is 7.64%.

Although the Trust has hotels in a few countries, most of its properties are in Australia. 

So, how well the Australian economy and hospitality sector do will have a big impact on the performance of the Trust. 

A stronger A$ will be good for the Trust. 

Will this happen? 

Well, if the much talked about recovery of the global economy takes place, then, yes.

For someone who is in search of more stability in passive income generation, hospitality business trusts, Ascendas Hospitality Trust included, might not be the best places to look. 

However, if we feel that the Trust's current DPU is realistic (which is another way of saying "not inflated"), then, as an investment to diversify our sources of passive income, it might be worth a nibble.

Having declined to a price of 72c a unit, investors who got in at IPO would still be nursing a paper loss even after taking in the income distributions received so far. 

They might want to ask if they were not already invested, would they initiate a long position at today's price?

See portfolio of hotels: here.

Pullman Sydney Hyde Park - Australia

Related post:
1. Ascendas Hospitality Trust: Am I interested?
2. OUE Hospitality Trust: Considerations.


Unknown said...

Dear AK, this question is not related to your post about Ascendas Hospitality Trust. Rather, it is about Sound Global which you have blogged about back in 2013 when its financial situation wasn't too good. My question is what is your take on this stock now. Are you still vested in it?. Of course, its listing has been transferred to HKEX.

Thank you.

AK71 said...

Hi Lynus,

Ever since I sold my shares in the middle of 2013, I have not looked at it.

The Lazy Rat said...

Hi AK,

The feds r currently meeting up to discuss about the interest rates. Standby for some changes in the current bank loan interest rates. It's always better to go into REITs when interest rates r higher :)

AK71 said...

Hi RR,

Like E H mentioned in an earlier blog post, it is hard to say what the Fed is going to do. So, crossing fingers here. ;p

E H said...


By the way, how many lot/s constitutes a nibble for you? 1 lot? 5 lots? 10 lots? Don't tell me 100 lots :(

AK71 said...

Hi E H,

Oh, in this case, definitely not 100 lots. ;p

WK said...

Time to nibble starhill reit also?

AK71 said...

Hi WK,

I would like for the distribution yield to be closer to 7% but it really depends on what people are after. :)

Unknown said...

Hi AK,

So have you nibbled 0.715 now. Haha

AK71 said...

Hi Kat,

Too small a dip, I would like to buy more at 68c. LOL. ;p

AK71 said...

Ascendas Hospitality Trust is in talks with a number of parties to sell the Pullman Cairns International hotel, the largest five-star hotel in the Australian city's central business district.

The hospitality real estate investment trust said on Wednesday (Sep 24) that the potential sale of the Cairns hotel is in line with its strategy of considering whether assets are ready for divestment to free up capital for more productive use.

It added that such discussions are preliminary and non-binding in nature, and there is no assurance that a definitive agreement will be reached.

Ascendas Hospitality owns 50 per cent of Pullman Cairns, which has 321 guest rooms and is valued at A$65 million (S$73 million).


ThinkNotLeft said...

Hi AK, if you are interested in Hospitality trust, why not consider hotel groups like Mandarin Oriental? Mandarin Oriental, at US$1.75, is at 0.6x of market NAV US$3. Its dividends are 7 cents, i.e. 4% yield. While the 4% yield is not fantastic compared to Hospitality Reits, I find the higher discount to NAV more attractive than the hospitality trusts.

AK71 said...

Hi ThinkNotLeft,

Thank you for the heads up. :)

For anyone who might be interested, I have provided the hyperlink to the results presentation:
Mandarin Oriental Hotel Group Half Year Results 2014.

I took a quick look too.

The group paid out 7c in dividend per share out of an EPS of 9.3c in 2013. That is a payout ratio of 75% for a dividend yield of 4% at US$1.75 a share.

NAV/share is US$3.05 a share after taking into consideration fair market values. Before that, it is US$0.99 a share. Gearing is 16%.

It seems to me that the primary reason for becoming an investor here would be to think of this as a possible acquisition target assuming that the valuations are realistic and that market prices of the assets are actually much higher.

Even if the Group were to pay out 100% of its earnings, it would achieve a dividend yield of about 5.3% only.

If its gearing level were to hypothetically double to 32%, we could see dividend yield becoming 6%, everything else remaining equal which still doesn't make it as attractive as Ascendas Hospitality Trust as an investment for income.

I don't know why its adjusted NAV/unit is so high and I just wonder if it is realistic. Are the assets very valuable but not terribly productive?

I am probably a fish out of water here. So, please feel free to share your insights into why this is a better investment than Ascendas Hospitality Trust, for example. Thanks. :)

Capricon said...

Hi AK,
How you derive a dividend yield of 6% after assuming a gearing of 32% ?


AK71 said...

Hi Capricon,

With 16% gearing, we see an EPS of 9.3c. Without gearing, EPS would be 7.82c or so.

With 32% gearing, EPS could be 11.49c. So, it should be 6.56% based on a share price of US$1.75. Apologies for the earlier mistake in calculation. ;p

Having said this, it is really a hypothetical situation that I am suggesting. A numbers game, nothing more. :)

ThinkNotLeft said...

Hi AK,
Hospitality Trust, like AH Trust, pays dividends out of cash flow, and often the dividends paid are higher than earnings. E.g. AH Trust FY13/14 earnings is $17mil, and its distributable income is $55mil.

If AH Trust only pays dividends out of earnings, and not cashflow, AH Trust will be lower than 5.3%.

On P/B basis, market NAV, Man Oriental is better than AH Trust. On PER basis, Mandarin Oriental PER is lower than AH Trust PER.

As Mandarin Oriental is 70% owned by Jardine Group, it is unlikely to be acquired.

For me, Mandarin Oriental is a growing dividend play over the long term.

Comparing to AH Trust, it is probably cheaper in valuation and less affected by rising interest rates, since its gearing is lower.

AK71 said...

Hi ThinkNotLeft,

Yes, you are absolutely right about a Trust paying out of its cashflow and a business paying out of its earnings. One is a unit trust and another is a stock.

However, I was just comparing the two from an income investing perspective and how much in terms of dividend yield I could extract based on the way a Trust and a business generate income for investors.

I really like the bit about the lower gearing because this is one reason why I have been increasing my investments in companies which have very little debt.

Thanks again for the heads up on Mandarin Oriental. The hospitality industry is not something that is in my circle of competence. I will have to study it more.

If you would like to do a guest blog on this stock to share with everyone here, please feel free to send it to

Much appreciated. :)

Unknown said...

0.700 now. Thinking if i should average down

AK71 said...

CDL Hospitality Trusts’ growth prospects for the next two years will be limited as hotel operators open more rooms in Singapore and visitor-arrivals from China to the city-state continue to fall, according to OSK-DMG.

“With headwinds facing both the demand and supply side of the tourism industry not abating, we see limited growth prospects over the next two years for this stock,” OSK-DMG analyst Ivan Looi said in a note today.

The number of new hotel rooms in Singapore will continue to grow, with 447 rooms slated for opening by end-2014 and another 3,229 rooms expected to be made available next year, he noted.

Looi, who has a “neutral” call and $1.76 price target on CDL Hospitality, expects its Maldives portfolio, which accounts for about 10% of total net property income, to drive the bulk of its DPU in 4Q2014.

The REIT reported today lower income for distribution for 3Q2014 and warned of increased risks to business in Singapore and Australia.


Solace said...

Increasing exposure at $0.68.

Finally it is at $0.68 from our last conversation.

Unknown said...

"8 May 2015 – Ascendas Hospitality Trust (“A-HTRUST”) posted gross revenue of
S$54.5 million for the fourth quarter ended 31 March 2015 (“4Q FY2014/15”), recording
growth of 1.6% year-on-year (“y-o-y”). Net property income also improved 2.8% y-o-y to
S$22.6 million in 4Q FY2014/15, in line with the improvement in revenue. The improvement,
which was mainly due to the contribution from Osaka Namba Washington Hotel Plaza, was
partially offset by continued weakening of the Australian Dollar (“AUD”) and Japanese Yen
(“JPY”) against the Singapore Dollar (“SGD”)."

AK71 said...

Hi Wei Xiong,

Thanks for the update. There will come a time when Ascendas Hospitality Trust does much better. Till then, I am quite happy to be paid while I wait. ;)

Solace said...

"A-HTRUST to divest Pullman Cairns International for A$75,080,000

 Divestment is in line with A-HTRUST’s active asset management strategy

 Consideration of A$75,080,000 is 12.1% above latest independent valuation of A$67.0 million

 A portion of proceeds to be used to repay existing debt, providing greater financial flexibility, and up to S$2.0 million will be distributed to Stapled Securityholders"

i see this as a good move on the part of management. Latest earning also in line with my expectations, most importantly i also like the news that the completion of the unwinding of the AUDSGD cross currency swaps in October 2014 will put A-HTRUST in a better position

AK71 said...

Hi Solace,

I like the sound of this. Thank you so much for the update. :)

AK71 said...

Payout ratio reduced to 95%. As expected in the absence of costs associated with the unwinding of cross-currency swaps (S$1.8m in 1Q15) which have negatively impacted DPU over the last year, ASCHT delivered a second consecutive quarter of y-o-y growth in DPU.

However, 1Q16 DPU was below expectations, coming in at 1.28 Scts (+3.2% y-o-y) as payout ratio was reduced to 95%. Going forward, to ensure a more sustainable DPU, up to 5% of distributable income will be retained for working capital purposes and to reduce the reliance on debt to fund recurring capex requirements.

ASCHT’s core Australian portfolio (55% of 1Q16 NPI) delivered a 9.9% increase in NPI in AUD terms with RevPAR jumping 3.9% to AUD134 (3.3-ppt increase in occupancy to 81.8% partially offset by 0.6% dip in ADR to AUD164).

However, due to a weaker AUD, NPI in SGD terms fell 1.6% to S$11.7m. With a softer JPY (-10%) impacting healthy underlying Japanese hotel performance (NPI in JPY terms up 3.1%), overall NPI also dipped 0.9% to S$21.4m.

ASCHT faces the challenge of higher interest costs. Nevertheless, with c.89% of the group’s debt being on fixed rates, ASCHT is partially insulated over the near term.

Significant volatility in AUD and JPY would negatively impact our DPU estimates. However, this risk is tempered by ASCHT entering into 15-month rolling hedges.

DBS Bank Ltd, 11 Aug 15.

AK71 said...

Yesterday, I added to my long position at 66c a unit.

Remarks from Solace in FB:

"AHT at $0.66, i believe market has alr taken account into the weakening of AUS dollars, Yen and potential rate hike
most imptly, it broke the the private placement price of $0.68
recent sale of Pullman Cairns International should indicate that AHT valuation of hotels in its book is not excessive. Hence NAV should not be too exaggerated"

AK71 said...

Morning BUY order for Ascendas Hospitality Trust at 64c a unit filled.

AK71 said...

The last time I added to my investment in Ascendas Hospitality Trust was on 24 August 2015 at 58.5c a unit. Conservatively estimating an annual DPU of 5.5c, I would be looking at a distribution yield of 9.4% at that price. If Mr. Market should go into another bout of depression, I hope to have another chance to add to my investment on the cheap.

Unknown said...


Could be another one following the same path as Saizen REIT?

AK71 said...

Hi Wei Xiong,

Yup. Could happen. Hope it is a good price.

"The REIT Manager and the Trustee-Manager (collectively, the “Managers”) wish to inform stapled securityholders of A-HTRUST (the “Stapled Securityholders”) that the Managers are currently reviewing certain strategic options for A-HTRUST.

"The Managers are undertaking this strategic review following receipt recently of an unsolicited expression of interest (“EOI”) relating to the possible acquisition of all the stapled securities issued by A-HTRUST (the “Stapled Securities”)."

Solace said...

Deal is off for now

"The Managers wish to update Stapled Securityholders that after evaluating the Proposals, the Managers have decided not to proceed with, and have ceased all discussions in relation to, the Transaction.

The Managers will continue to work towards growing and enhancing the portfolio of A-HTRUST to deliver value and sustainable returns to Stapled Securityholders"

Newly Independent Valuations completed on 31 December 2015 shows that AHT NAV per share is worth about 84.2 Cents.

If it is indeed worth that much, that might explains why offer price was not accepted if it is not in excess of the NAV

AK71 said...

Hi Solace,

I think this is a good thing. I happen to like these income producing assets. :)

AK71 said...

I understand you have Ascendas H-Trust in your portfolio currently, which in one of your earlier posts, you decided not to at IPO?
May I know why you have decided to buy? For me I like it after the Chinese failed to bought it over due to NAV differences... low debt as well. Not sure what you think.

The IPO was overpriced. ;)
I bought when it was priced more realistically.

csky said...

Hi AK, Thanks for this post. I found the answers to some of my earlier questions! Patience (you got in almost 2 years after IPO when you first looked at it), and viewing Mr's Market's pessimism as opportunity after you have assessed what's a realistic DPU.

AK71 said...

Hi csky,

I am usually not interested in IPOs and in the case of AHT, its IPO was heavily financial engineered to present a higher and unsustainable distribution yield.

All investments are good at the right price. :)

You might also be interested in this blog:
"My investment in August 2015 would receive a distribution yield of more than 9.5% based on the numbers I used for my purchase in 2014..."

csky said...

Yes, I was salivating when I saw that 9.5% yield! But I also finally see what you mean when you say there's always opportunities even in a bull market.

I need to buck up and get better at finding these opportunities and also be better at differentiating opportunities from falling knives. ;p

AK71 said...

Hi csky,

Buying cheap stocks in a recession is a given.

However, we can also buy stocks cheaper when there isn't a recession.

Sometimes, there could be stock specific events.

It is only human to be wrong from time to time.

If we can get it right most of the time, we will do better than most.

AK71 said...

Was chatting with a reader about AHT.

For those who are interested in the when and why I nibbled at AHT four years ago, this is the blog to read.

It was largely about being realistic in more ways than one.

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