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Why Did Ascendas Hospitality Trust’s Net Property Income Decline Last Quarter?

Ascendas Hospitality Trust (SGX: Q1P) is a stapled trust that owns 12 hotels in Australia, China, Japan, and Singapore. Despite, Singapore’s growing tourism industry, the trust has faced challenges in its other markets that have resulted in another poor financial performance over the last quarter (July to September 2018). Here’s a quick look at why its net property income declined last quarter.

A challenging market in Australia

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With majority of its net property income derived from Australia, Ascendas Hospitality Trust is highly dependent on its Australian portfolio. However, in recent times, the Australian hospitality market has been challenging, resulting in lower room rates in Ascendas Hospitality Trust’s Australian hotels.

Revenue per available room, a key metric in the hospitality sector, declined 4.7% during the quarter due to lower room rates.

Weakening Australian dollar

Compounding matters was the weakening Australian dollar against the Singapore currency. Ascendas Hospitality Trust collects its income from its Australian portfolio in Australian dollars but reports and pays its unitholders in Singapore dollars.

In Australian dollar terms, net property income for its Australian portfolio declined 14.0% from a year ago. However, when converted to Singapore dollars, net property income for the last quarter dropped by a larger amount at 19.9%. A 7% decline in the Australian dollar compared to the Singapore dollar was the main culprit for the larger drop.

The figure below illustrates this point:

Source: Ascendas Hospitality Trust FY18/19 Q2 Earnings Presentation

Japan portfolio affected by bad weather

Finally, Ascendas Hospitality Trust’s Japan portfolio was affected by an earthquake and typhoon in Osaka. The unforeseen situation resulted in lower revenue per available room. Net property income from its Japan portfolio also declined 1.6% in Singapore dollar terms.

However, this is a one-off event and should not affect income in the future.

Looking ahead

There are both good news and bad news for Ascendas Hospitality Trust unitholders.

First the bad news. Its Australian portfolio will continue to face challenges. A soft market in Sydney, coupled with a supply glut in Melbourne will likely continue to drive prices lower. Ascendas Hospitality Trust’s Japan portfolio is also facing the same issues with increasing room supplies in Tokyo and Osaka.

However, on a more positive note, the Singapore market continues to be a bright light for the trust, with market-wide revenue per available room growing 3.5% in the first eight months of 2018. Also, the acquisitions of three WBF hotels in Osaka (two completed on 28 September and one to be completed by January 2019) will provide additional rental income for the trust in the future. 

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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 Jeremy Chia doesn’t own shares in any companies mentioned.