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Ascendas Hospitality Trust's investors getting a bad deal?

Wednesday, July 10, 2019

As a backgrounder, if you have not done so, you might want to read this blog:

Ascott Residence Trust and Ascendas Hospitality Trust to become one.


It was published on Wednesday, July 3rd, 2019.

The blog here is in reply to a reader's comment that it is a bad deal for AHT investors.




AK says...

While not fantastic, really, it isn't that bad a deal for AHT investors.

For every AHT unit, we will get almost 0.8 unit in the combined entity.

Priced at $1.30 per unit, the deal values AHT at almost $1.04 a unit.

AHT was trading at way below its NAV (of about $1.01) for too long.

See:
AHT Stock Fundamentals.




Also, priced at about $1.04 a unit, the yield of AHT would be about 5.76%.

At $1.30 a unit, the combined entity will provide us with a distribution yield of about 5.5% which is pretty close to this 5.76%.

After taking into consideration the cash payment of 5+ cents per unit which AHT investors will get (and this is close to one year's worth of income distribution), I believe that this is a fair deal.




We should not compare AHT with the new combined entity by looking at yield numbers only.

We might see the tree but not the forest.

I am willing to accept a slightly lower distribution yield from what I think should be a stronger and more resilient business entity.

The new business entity will also have a much lower level of concentration risk which was a negative about AHT.




Of course, if we are pretty sure we are able to secure a much higher yield in a similar investment with a similar risk profile elsewhere, we should move our money to where it will be treated better.

Or if we wish to lock in the capital gains, there is nothing wrong with taking profit by selling our units to Mr. Market either.

As I do not have an alternative investment in mind, I am quite happy to stay put. :)




Recently published:
2Q 2019 passive income.

6 comments:

Your Ka-ki! said...

Thank you AK for blogging today.

Many AK shares like CDG and APTT have gone up. I hope ak didn't dispose them.

Huatt ah

keng said...

Hi AK,

With the enlarged entity, the trust will have a billion dollars of debt headroom. Coupled with MAS recent decision to review the 45% gearing, we may see more DPU accretive acquisitions. Good for us if that happens.

Glad to see you back here!

AK and friends maybe? :P

Invest Sg said...

Hi AK - thank you for posting :)

AK71 said...

Hi YKK,

I am staying mostly invested for income but there is nothing wrong with taking some money off the table in a nice rally.

If you have been following my blog for a long time, you might remember this strategy as trading around a core position.

I might blog about this later. :)

AK71 said...

Hi Keng,

Singapore has relatively conservative guidelines when it comes to gearing level for REITs.

Crossing fingers.

You might have missed this blog:
Financial freedom and ....

I know.

Bad AK! Bad AK! :p

AK71 said...

Hi Invest Sg,

Just talking to myself. ;)

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