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Ascendas Hospitality Trust 2nd Quarter Earnings: DPU Up 8.7% Despite Lower Revenues

Ascendas Hospitality Trust (SGX: Q1P) released its second-quarter earnings on Wednesday. The reporting period was from 1 July 2015 to 30 September 2015.

Ascendas Hospitality Trust (A-H TRUST) is a stapled trust that focuses on building a portfolio of income-producing real estate assets for hospitality purposes.  Its ‘stapled’ nature simply means that it’s comprised of both the Ascendas Hospitality Real Estate Investment Trust (REIT) and Ascendas Hospitality Business Trust.

On 31 March 2015, A-H trust’s portfolio consists of 11 hotels located across Asia and is valued at S$1.34 billion, excluding the valuation of Pullman Cairns International which was divested in June 2015. The bulk (six hotels) of its portfolio are based in Australia with the remaining spread across Japan, China and Singapore.

You can read more about Ascendas Hospitality Trust here.

Financial Highlights

Gross revenue declined 6.1% to S$54.5 million on a year-to-year basis, despite a better financial performance of its properties, largely due to the extensive depreciation of AUD and JPY against SGD. As such, net property income also fell in line to S$22.6 million, down 2.9% during the same period.

However, income available for distribution buck the decline of the top-line and advanced 15.1% to S$16.3 million. This can be attributed to two main factors: 1) Absence of the unwinding of a cross currency swap which occurred last year and 2) divestment of Pullman Cairns International.

As a result, distribution per stapled security (DPS) for the reporting quarter stands at 1.38 Singapore cents — a 8.7% jump from the 1.27 Singapore cents seen in the same quarter last year.

Foolish investors might want to keep an eye on a trust’s debt profile. The debt profile may provide clues as to how a trust is funded, and its sensitivity to the interest rate environment. These information are summarized for Ascendas Hospitality Trust below:

As at 30 September 2015 As at 30 September 2014
Gearing 37.5% 38.3%
Weighted average debt to maturity 2.5 years 3.1 years
Weighted average interest rate 3.3% 3.1%
Total borrowings S$536.8 million S$550.6 million
Net asset value per stapled security S$0.71 S$0.73

Source: Ascendas Hospitality Trust’s earnings presentation

As we can see from the table above, Ascendas Hospitality Trust’s gearing is on the higher end at 37.5%, even though it has fallen slightly from 38.3% last year. Foolish investors should be aware that there is a proposal from the Monetary Authority of Singapore to cap future gearing for REITs to a single-tier limit of 45%, thus any further opportunities for growth will probably be financed by equity fundraising (think rights-issue).

While the debt profile seems a tad lower compared to the previous year, its borrowings are closer to the date of maturity (2.5 years) than before. Nonetheless, the management team is already in advanced negotiations for refinancing of debt maturing next year. Investors should watch if the renewed debts come at a higher interest costs than before.

Ascendas Hospitality Trust ended FY 2014/15 with a net asset value (NAV) per unit of $0.71. This represents a small 2.74% decline from the NAV of S$0.73 per unit during the same quarter last year.

Operational highlights

In terms of net property income, the trust’s Australian properties experienced a 5.8% increase year on year in the second quarter, due to solid demand at its Sydney and Melbourne hotels. Revenue per available room (RevPAR) was up 4.4% year on year in Australian dollar terms, but this was offset by a weakening Australian dollar.

The properties in Japan also demonstrated a strong quarter, with net property income jumping 9.5% in 2Q FY2015/16 as compared to the previous year. This can be attributed to a steady improvement in Oakwood Apartments.

Mr Tay Juay Hiang, the Chief Executive Officer of the trust’s manager, had the following comment for the reporting quarter:

“We are pleased with the overall performance of our portfolio, where the average RevPAR for our portfolio of hotels in Australia, China, Japan and Singapore posted y-o-y growth.

Our hotels are well-positioned to benefit from the overall buoyant tourism sector in Australia and Japan. The portfolio in these countries continued from where we left off in 1Q FY2015/16 to post another quarter of organic growth. Despite the challenging environment, we are encouraged by the performance of the China portfolio, which managed to stem four quarters of decline of revenue and posted a y-o-y improvement this quarter in RMB terms. On the  Singapore front, the sector looked increasingly affected by slowing economy and new supply of rooms. However, Park Hotel Clarke Quay continued to outperform majority of its peer and posted a y-o-y growth in RevPAR.

The portfolio posted improvement in net property income in each of the four countries that we operated in the respective local currencies. However, as AUD and JPY continued to depreciate against SGD, our financial results were adversely affected in SGD terms.”

Foolish summary

Ascendas Hospitality Trust last traded at $0.68 on Wednesday. This translates to a historical price-to-book ratio of 0.95 and a trailing twelve months distribution yield of 7.5%.

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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 contributor James Yeo doesn’t own shares in any companies mentioned.