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Over the weekend, a friend asked me if I would be interested in Ascendas Hospitality Trust although he knew that I am generally not interested in IPOs. He was just asking for my thoughts on the Trust.
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| Ariake Sunroute Hotel, Japan. |
Ascendas Hospitality Trust (A-HTrust) will be offering 437.33 million stapled securities at 88 cents each for mainboard listing in its initial public offer (IPO) in Singapore.
(Source: The Business Times, 18 July 2012)
What are stapled securities?
Stapling simply means that two different securities are "stapled" together for the purposes of trading or transfers. Stapled security could comprise two or more of the same or legally different instruments, for example, a share in a company and a unit in a trust.
The trust(s) and the company(ies) can hold assets and operate businesses, but active business, such as asset management and development are typically conducted by the company while passive investments in property or funds are undertaken by the trust. In practice, the trust and the company effectively operate as one entity although the company continues to be a separate legal entity from the trust.
Source: http://www.invested.hk/invested/en/html/section/index.html
For example:
CDL Hospitality Trusts is a stapled group comprising CDL Hospitality Real Estate Investment Trust ("H-REIT"), a real estate investment trust, and CDL Hospitality Business Trust ("HBT"), a business trust.
Well, what do I think of Ascendas Hospitality Trust? I won't do a thorough analysis of the Trust because I don't really have the inclination although I will share why I am not interested in it (now).
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| ibis Beijing Sanyuan Hotel. |
Initially, the Trust will hold 10 hotels in its portfolio. These hotels are in the countries of China, Australia and Japan with Australia contributing to some three quarters of its income. The Trust also projects an 8% distribution yield in the year 2014.
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.
Then, what about my investment in Saizen REIT? Isn't that Japanese?
I won't say that I am conversant with the Japanese economy or its housing sector but I am a bit better informed in the area. Also, it is one country, not three and I only have to look at a pair of currencies, not three.
Saizen REIT is also holding residential properties, not hotels. Demand for housing is more inelastic compared to demand for hotels and with the type of properties Saizen REIT owns, there is lesser correlation with the ups and downs of the economy. Demand for hotels, however, is very different.
Ascendas Hospitality Trust is going to demand a lot of time and effort from me if I were to be become a unitholder. An eventual 8% distribution yield? I will need a higher distribution yield to entice me into this one in view of the work I have to do.
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18 comments:
Hi AK
How about the coming IHH. Can to share your view on this counter bo?
Hi Kim,
Yes, this is really big, isn't it? Personally, I am optimistic about the growing healthcare sector in Asia. Growth in a defensive sector? Sounds good. :)
However, it is really about getting value for money. Warren Buffet would tell us that IPOs are priced to benefit the issuers. Is that the case for this IPO? Probably.
This is a multi-national outfit with investments in 8 different countries. Definitely more complex than Parkway Holdings Ltd which is now a part of it.
Mr. Market could react quite well to this IPO. After all, it has the right pedigree and it is in the right industry.
Personally, I will wait to see how things develop and, hopefully, buy it at a lower price given the current bearish mood which might temper Mr. Market's enthusiasm. A bigger margin of safety would not hurt. :)
Hi AK
Thank u very much for sharing your view.
Please do post it on your blog if you do buy this counter k:)
I believe many readers are also interested in this counter also.
Cos i one of them hee hee :)
Hi Kim,
You are welcome. Happy to share my thoughts.
It does look like a very promising growth stock. I guess I will have an eye on this. ;)
I also did not apply. As the hotels are not in SG but overseas. I will be more keen to apply if the hotels are in SG. Also they have forecast loss for FY2013. lol.
I might buy when it goes underwater when it starts trading.
AK,
agree with you! This counter hits all the right buttons: healthcare is a growing business, exposure to growing markets like Turkey and Malaysia, ...
But valuation clearly an issue and 'priced for the issuer' as you pointed out. So let's hope the market decides one day to beat them up for missed quarter and then I will have my cash handy..
A specific concern I have is that the management still needs to prove that they can handle such a big and complex animal. Combined running of hospitals in Istanbul, KL and Singapore is not as clear of a business case (I would argue hospitals are very much a local business). Add to this the potential for political infighting between all the 'original' entities that keep their names and want to have as much control as possible. Just looking at their org structure in the BT made me dizzy already...
Jay
Hi Foodie FC,
If I remember correctly, Ascendas is waiving income distribution accruing to them in order to promise 7+% to unitholders in the first year. Some straightforward financial engineering there. ;)
Personally, I don't need to have the hotels in Singapore in order to be interested. If the hotels are in one country only, it would be less work to decide from time to time to be vested or not. Having hotels in various countries just makes the job more onerous.
I am a lazy guy...
Hi Jay,
Yes, IHH's IPO price does not look cheap to me although this could be quite subjective.
This behemoth of a company with investments in 8 different countries is definitely a very different animal from Parkway Holdings Limited of the past. Only time will tell if the management is able to deliver on the vision being sold to investors now.
This is a complex creature which could grow into a huge success but if only the parts could come together. Being more iffy, I would prefer a bigger margin of safety.
Ascendas Hospitality Trust (A-HTRUST), said the public tranche of its IPO was 5.9 times oversubscribed.
Ascendas Hospitality Trust (A-HTRUST) comprises Ascendas Hospitality Real Estate Investment Trust (AREIT) and Ascendas Hospitality Business Trust (AHBT), with an initial portfolio of 10 quality hotels.
Trading in the stapled securities of A-HTRUST on the Mainboard of the SGX is expected to start at 2 p.m. on Friday, 27 July 2012.
I'm interested, but I still gave it a miss. :)
Hi JW,
I guess we can be interested in a business but we might not be interested in buying into it. :)
Ascendas Hospitality Trust started trading slightly below its offer price on Friday, despite the units being fairly well subscribed during the IPO phase.
The units opened at $0.875, or about 0.6% below the IPO price of $0.88. They were last traded at S$0.89 with nearly 19 million units changing hands.
Ascendas Hospitality had cut the size of its IPO earlier this week after stripping a South Korean hotel from its portfolio. The trust sold 437.325 million stapled securities, down from an original offer size of between 506.075 million and 529.648 million units.
REUTERS, 27 JULY 2012.
Units in Ascendas Hospitality Trust, which have been supported by its stabilising manager, may fall after the manager stops buying its units from the market, traders said.
Nomura Securities Singapore has bought around 10 million Ascendas’ stapled securities from the open market at a range of $0.86 to $0.88 since the trust’s listing on July 27.
Ascendas was trading at $0.875, slightly below its initial public offering price of $0.88.
The over-allotment option is set to expire 30 days fom Ascendas’ listing date or when the stabilising manager has bought 73.4 million units, representing 16.8% of the total number of stapled securities in the offering.
“There’s always a geographic bias. Usually for REITs, if they have primarily Singapore assets, people might be more familiar with them. In Ascendas’s case, they have no assets in Singapore,” said Ong Kian Lin, an analyst at Maybank Kim Eng.
Ascendas has 10 properties in Australia, China and Japan.
Some traders however said the downside could be limited due to the trust’s relatively attractive yield. At $0.88 per unit, the trust would offer a yield of about 7.9% in the year ended March 2013, Ascendas said.
“If the price falls, it might be limited because their projected yield is about 8 percent, which is fairly high,” said a trader.
The weakness in Ascendas comes after a strong showing by Far Far East Hospitality Trust, which priced its initial public offering at the top end of an indicative range.
REUTERS, 21 AUG 12.
DBS Vickers downgrades Ascendas Hospitality Trust to Hold from Buy, citing limited upside, even after raising its target to $1.03 from $0.98 on lower discount rates. AHT’s outlook remains mixed, with its Australian operations under pressure, DBSV says.
“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.” But on the 2H13 completion of the Australian hotels’ refurbishment and rebranding exercise, it expects the portfolio to reap benefits through room-rate hikes and improved margins. It expects the China hotels to continue benefiting from robust domestic demand for travel into Beijing.
Fiscal-3Q13 results were in line with its expectations, with revenue of $51.4 million 2.5% below forecast on the Australian hotels’ soft operating environment and with the weak JPY vs the SGD slightly impacting the Ariake Hotel performance, while the China hotels performed strongly and net property income rose 4.1% amid stringent cost measures. The stock is down 1.5% at $0.98.
Unit price has declined quite a bit since its IPO at 88c. Last traded at 72c. Seems like it cannot meet its DPU forecast.
Hi, AK,
Does the current price of 73 cent attract you to buy in?
Do you have any units for this counter?
Hi ching wei,
Nope, I don't have any exposure to this REIT. I said that I need a higher yield to attract me to this REIT and I still think so. This is just me. :)
If you like the numbers, why not?
A recent reply to a reader on FB,
"With PCRT, it was really a huge fundamental problem with the business. It could not deliver.
"With AHT, the problem is not with the business. The problem is with macro-economics and with assets scattered in so many countries, it makes it difficult to gauge with accuracy future performance.
"The demand for higher distribution yield here is to compensate for my lack of proficiency. -.-"
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