Ascendas Hospitality Trust Has Been Disappointing Since Its IPO – Will It Do Well For Investors Now?

Ascendas Hospitality Trust (SGX: Q1P), a stapled trust with 12 hotels in its portfolio located in Australia, China, Japan, and Singapore, was listed back in July 2012 at a price of S$0.88 per unit.

It’s been nearly three years since then, but the trust, which runs over 4,500 rooms under hotel brands like Novotel and Courtyard by Marriot amongst others, has been a disappointing investment for its investors.

At today’s price of S$0.705, Ascendas Hospitality Trust’s units are nearly 20% lower than its initial public offering (IPO) price.

For some perspective, the SPDR STI ETF (SGX: ES3), a proxy for the market barometer the Straits Times Index (SGX: ^STI), is up by 15% over the same timeframe.

The decline in the trust’s price might be linked back to the forecasts it had given in its own IPO prospectus.

Ascendas Hospitality Trust had forecasted its distributions for FY2013 (financial year ended 31 March 2013) and FY2014 to be 6.92 Singapore cents per unit and 7.07 Singapore cents per unit respectively. (The forecasted DPU for FY2013 is an annualised figure). Based on its listing price of S$0.88 per unit, that would have given Ascendas Hospitality Trust a forecasted yield of 7.9% in FY2013 and 8.0% in FY2014.

Unfortunately, the trust failed to meet its target for FY2014 when its distributions came in at only 5.58 cents per unit, 20% below the forecasted figure. It thus seems only fair that investors would punish Ascendas Hospitality Trust for failing to meet its own targets. That punishment though, may have resulted in a potential opportunity.

At the trust’s current price, it has a distribution yield of 7.25% (based on annualizing the distributions seen in the first three quarters of FY2015). That’s an attractive yield. But, there are two main questions to ask before one can invest in this stapled trust:

  1. Is a yield of at least 7.25% sustainable going forward?
  2. Will the trust be able to grow its distributions in the future?

Foolish Summary

From Ascendas Hospitality Trust’s latest presentation, it would seem that it is quite optimistic about the future of its Australian properties due to growth in the country’s tourism sector over the last few years.

Meanwhile, Japan should also be an area for growth for the trust due to its fast-growing tourism sector. While the weaker Japanese yen might increase Japan’s attractiveness as a tourist destination yet further and thus benefit Ascendas Hospitality Trust’s Japanese properties, investors have to note that a deprecating yen can cut both ways given that the trust collects revenue from its Japanese properties in the yen.

In Singapore, Park Hotel Clarke Quay is on a master lease agreement and thus should continue to contribute stable income to Ascendas Hospitality Trust.

The only worrying area for the trust is its business in China. A slowdown in economic growth in the country and an oversupply of hotel rooms in Beijing are just some of the headwinds that Ascendas Hospitality Trust has to face.

But with all that said, it’s worth noting that Ascendas Hospitality Trust’s management does not have a good track record at forecasting the business (we only have to look at the trust’s poor forecasts in distributions).

So, despite some of the rosy scenarios painted above, investors might be better off analysing the future prospects of the trust for themselves.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore writer Stanley Lim doesn’t own shares in any companies mentioned.