Wednesday, August 7, 2013

Ascendas Hospitality Trust (AHT) - A Bad start to the new FY2013/2014

I was tempted to originally do a write-up on Vicom after it releases its Q2 results today, but upon looking at AHT Q1 results, I have decided to pen my thoughts on this instead.



There is only one word to conclude the Q1 results: BAD. AHT has actually registered a S$7.5M loss for the quarter compared to the forecast of $1.1M profit it has on its prospectus. The majority of the losses was due to the foreign exchange loss related to the revaluation on its AUD and JPY which contributed almost $15M on the negative. As a result of the loss on the revaluation, NAV has dropped from $0.83 to $0.77. In my opinion, I find it surprising that for a company's earnings that is so dependent on its overseas business, it does not hedge its currency against AUD and JPY. 

Excluding the foreign exchange effects, Gross revenue and Net property Income (NPI) were $48M and $17.1M respectively and they were still somewhat 7% lower than the IPO forecast it has in its prospectus. The lower reported figure was due to increasing competition and rising supply, leading to a lower rev/par for the sectors in general. Looking at the recent fellow hospitality sectors like Ascott, CDL Trust, FEHT and now AHT, it looks like the hospitality sectors are facing headwinds and it is not the sector you would want to be at the moment.

Another worry which I had for AHT was that the current yield of 8.6% was due to the 100% distribution the management had promised to give out until Mar 2014. After that, the company is only needed to give out at least 90% distribution which I think they will. This means that the yield will drop to 7.7%, a level which is uncomfortable for me being a highly concentrated "overseas" business.

If there are any comfort for AHT, it is that the new acquisition Park Hotel will contribute massively (almost 23% of earnings) into AHT earnings for the next quarter. This will help to mitigate the lower earnings it receives from its overseas business.

Market has entered into a long weekend so investors can take a breather for now. I do foresee a massive dropdown in AHT come next Monday when market re-opens. With NAV at $0.77, I will not be surprised if it drops to that level. For me, I will evaluate my options on this within the near future.

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