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9 Key Points From Ascendas Hospitality Trust’s Latest Earnings

Yesterday, Ascendas Hospitality Trust (SGX: Q1P) or AHT released their third-quarter earnings for the fiscal year ending 31 March 2019 (FY2019) earnings. As a recap, AHT is a stapled group consisting of Ascendas Hospitality Real Estate Investment Trust (REIT) and Ascendas Hospitality Business Trust. AHT owns a total of 14 hotels located in Australia, Japan, South Korea and Singapore with approximately 4,700 rooms.

Here are nine key points from their latest earnings:-

1. Gross revenue declined by 5.1% year on year from S$52.8 million to S$50.1 million. This decrease was mainly due to a drop in gross revenue from Australia which was slightly offset by contributions from newly acquired hotels in South Korea. Note: the comparison excludes the revenue contributions from the China hotels which were divested during the financial year.

2. Net property income (NPI) was flat year on year. NPI was benefited from the introduction of new hotels but to offset by the loss of NPI from its divested China hotels. Income available for distribution increased by 3.4% from S$17.2 million to S$17.7 million due to the absence of due diligence costs record in FY2018’s third-quarter for an acquisition which did not materialize together with overall lower finance costs.

3. Distribution per unit (DPU) was 1.45 Singapore cents for the quarter, up 2.8% year on year. The trust only pays half-yearly distributions (on quarters ended 30 September and 31 March) therefore there will be no distribution for the current quarter. The previous distribution was for 2.81 Singapore cents for 1H FY 2019. The REIT’s trailing 12-month DPU is 5.98 Singapore cents, and at yesterday’s closing price of S$0.84 for AHT, it represents a trailing dividend yield of 7.1%.

4. For the Australian hotels under management contracts, the average occupancy rate dipped slightly during the quarter from 86.7% to 86.0%. However, the average daily rate was softer at AUD 179 (down 2.7% year on year) while RevPAR (i.e. revenue per available room) declined by 3.8% year on year to AUD 154. Competition for rooms in an over-supplied market resulted in lower daily rates and RevPAR.

5. As at 31 December 2018, AHT had a gearing level of S$625.2 million or 33.1% (total debt to total assets ratio). This ratio was slightly higher than the gearing of 30.8% recorded on 30 September 2018. Interest cover has improved to 8.5 times while weighted average cost of debt remained fairly constant at 2.0% (1.9% at the end of previous quarter).

6. The trust acquired a total of five hotels during FY2019 thus far, three two in South Korea and two three in Japan. These acquisitions are expected to add to DPU and has increased the number of hotels in the portfolio from 9 properties (as at end of fiscal year 2018) to 14 properties currently. More than 90% of the properties in the portfolio are freehold.

7. Asset Enhancement Works in the form of a major refurbishment was done on Pullman & Mercure Brisbane at King George Square, and the F&B outlet opened in December 2018.

8. For the trust’s outlook, headwinds in the form of intensified competition are expected for Australia, due to the upcoming new supply of rooms in Melbourne. The outlook for Japan remains sanguine despite the the threat of natural disasters. South Korea and Singapore are seeing good tourism numbers which will boost the prospects for the hotels located there.

9. Tan Juay Hiang, CEO of the Trust’s Manager, had this to say:

“During the quarter ended 31 December 2018, AHT kept up the growth momentum and added a second hotel in Seoul, Ibis Ambassador Seoul Insadong, and Hotel WBF Honmachi in Osaka to its growing portfolio of quality assets. The acquisitions of the five hotels during the year reinforced our diversification strategy and will add further stability to the income stream, and as a result, strengthened the resilience of the portfolio as a whole.”

The Foolish Bottom Line

AHT is facing headwinds in their key market of Australia while being dogged by over-supply of hotel rooms. The trust is also facing a weaker Australian dollar. As Australia takes up 49% of NPI, the Trust may continue to see weaker revenue and lower NPI margins as a result of pricing pressure.

Consequently, the trust’s DPU may also be negatively impacted. However, these headwinds are expected to be mitigated by the new acquisitions in South Korea and Japan. Depending on their performance for the upcoming fiscal year, the new hotels may be able to mitigate some of the negative impacts from the weakening of the Australian portfolio.

[Editor’s note: the new acquisitions made by the trust was corrected on 2 February]

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The Motley Fool Singapore contributor Royston Yang contributed to this article. Royston does not own shares in Ascendas Hospitality Trust.

The information provided is for general information purposes only and is not intended to be personalized investment or financial advice. The Motley Fool Singapore writer Chin Hui Leong does not own shares in Ascendas Hospitality Trust.