SGX Market Strategist, Equity & Fixed Income, Singapore Exchange Ltd (SGX)

Geoff Howie

SGX Market Strategist, Equity & Fixed Income

Asia’s leading multi-asset exchange

Singapore Exchange Ltd (SGX)

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Equity Bottom-Up

Acrophyte Hospitality Trust / Equity Bottom-Up

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<p>WITHIN Singapore's Reits &amp; Property Trusts (S-Reits) that are listed for trading, there are five (ARA US Hospitality Trust, Manulife US Reit, Prime US Reit, United Hampshire US Reit, Keppel Pacific Oak US Reit) with 100 per cent of assets located in the US and three (IReit Global, Cromwell European Reit, Elite Commercial Reit) with 100 per cent of their assets in Europe.</p>

<p>These eight S-Reits have an average distribution yield of 7.5 per cent and generated positive average total returns of 8.9 per cent in the 2021 year-to-date till May 12.</p>

<p>In the past week, Cromwell European Reit (CE Reit), Manulife US Reit (MUST) and United Hampshire US Reit (UHU Reit) published their business/operational updates for the first quarter of 2021. Common outlook expectations revolved around the recovery of economic activities in 2021 as vaccination roll-outs progress, restrictions ease, daily activities resume and employment data rebound.</p>

<p>With most of Europe still under tight restrictions during the quarter, GDP for the eurozone economy fell by 0.6 per cent quarter-on-quarter, based on preliminary data released by Europe's statistics office Eurostat. CE Reit noted that, barring a further deterioration of the current Covid-19 situation, the eurozone's 2021 GDP growth is projected at 4.1 per cent (according to Oxford Economics).<br><br>
CE Reit's gross revenue and net property income (NPI) declined marginally by 0.1 per cent and 0.4 per cent, respectively for Q1 FY2021. This was attributed to prolonged Covid-19 lockdowns in most of CE Reit's countries of operations. However, the Reit believes that there will be higher demand for light industrial /logistics space as e-commerce continues to expand in 2021, supplemented by further demand coming from the reconfiguration and expansion of supply chains so as to be better prepared for future disruptions and consumer demand shocks. In March 2021, CE Reit completed the acquisition of 11 modern logistics assets in Czech Republic and Slovakia. The Reit aims to increase exposure to logistics to 50 per cent of portfolio asset under management (AUM), up from the current 38 per cent.<br><br>
In contrast to Europe's GDP contraction in the Q1 2021, the US reported a quarter-on-quarter GDP growth of 1.6 per cent. Both MUST and UHU Reit noted that the GDP rebound indicates momentum coupled with improving unemployment rate, fast-paced vaccination roll-out and two rounds of federal stimulus payments.</p>

<p>In its Q1 FY2021 operational update, MUST reported strong lease renewals (93.6 per cent of leases by NLA) but minimal new leases as prospective tenants continue to stay cautious. Looking forward, MUST expects post Covid-19 themes such as the acceleration of population and company migration, growing technology sector, strong demand for healthcare and fast developing knowledge economy to provide uplift to the Reit. MUST intends to target cities that are business-friendly, have growing technology and healthcare industries as well as robust population growth.</p>

<p>Compared to IPO forecasts, UHU Reit's Q1 FY2021 distributable income was up 1.3 per cent while gross revenue and NPI were down 1.9 per cent and 1.8 per cent respectively. UHU Reit noted that, according to the National Retail Federation (NRF), US retail sales are expected to grow between 6.5 per cent and 8.2 per cent in 2021, underpinned by healthy consumer fundamentals, pent-up demand and widespread vaccination. This was evident in the new and renewal leases signed this quarter, most of which were food &amp; beverage and consumer services tenants.</p>

<p>The Reit also expects trends such as increase in consumer awareness of the benefits of self-storage, an increasingly mobile population and the decluttering of homes to create more efficient workspaces to continue even as the country transitions to a post-Covid environment.<br><br><strong><em>REIT Watch is a weekly column on The Business Times,<a href="https://www.businesstimes.com.sg/companies-markets/china-poised-to-drive-economic-growth"> </a><a href="https://www.businesstimes.com.sg/companies-markets/western-s-reits-sanguine-on-post-covid-outlook">read</a><a href="https://www.businesstimes.com.sg/companies-markets/bulk-of-s-reits-in-key-global-real-estate-indices"> </a>the original version.</em></strong></p>
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    REIT watch


WITHIN Singapore's Reits &amp; Property Trusts (S-Reits) that are listed for trading, there are five (ARA US Hospitality Trust, Manulife US Reit, Prime US Reit, United Hampshire US Reit, Keppel Pacific Oak US Reit) with 100 per cent of assets located in the US and three (IReit Global, Cromwell European Reit, Elite Commercial Reit) with 100 per cent of their assets in Europe.

These eight S-Reits have an average distribution yield of 7.5 per cent and generated positive average total returns of 8.9 per cent in the 2021 year-to-date till May 12.

In the past week, Cromwell European Reit (CE Reit), Manulife US Reit (MUST) and United Hampshire US Reit (UHU Reit) published their business/operational updates for the first quarter of 2021. Common outlook expectations revolved around the recovery of economic activities in 2021 as vaccination roll-outs progress, restrictions ease, daily activities resume and employment data rebound.

With most of Europe still under tight restrictions during the quarter, GDP for the eurozone economy fell by 0.6 per cent quarter-on-quarter, based on preliminary data released by Europe's statistics office Eurostat. CE Reit noted that, barring a further deterioration of the current Covid-19 situation, the eurozone's 2021 GDP growth is projected at 4.1 per cent (according to Oxford Economics).  
CE Reit's gross revenue and net property income (NPI) declined marginally by 0.1 per cent and 0.4 per cent, respectively for Q1 FY2021. This was attributed to prolonged Covid-19 lockdowns in most of CE Reit's countries of operations. However, the Reit believes that there will be higher demand for light industrial /logistics space as e-commerce continues to expand in 2021, supplemented by further demand coming from the reconfiguration and expansion of supply chains so as to be better prepared for future disruptions and consumer demand shocks. In March 2021, CE Reit completed the acquisition of 11 modern logistics assets in Czech Republic and Slovakia. The Reit aims to increase exposure to logistics to 50 per cent of portfolio asset under management (AUM), up from the current 38 per cent.  
In contrast to Europe's GDP contraction in the Q1 2021, the US reported a quarter-on-quarter GDP growth of 1.6 per cent. Both MUST and UHU Reit noted that the GDP rebound indicates momentum coupled with improving unemployment rate, fast-paced vaccination roll-out and two rounds of federal stimulus payments.

In its Q1 FY2021 operational update, MUST reported strong lease renewals (93.6 per cent of leases by NLA) but minimal new leases as prospective tenants continue to stay cautious. Looking forward, MUST expects post Covid-19 themes such as the acceleration of population and company migration, growing technology sector, strong demand for healthcare and fast developing knowledge economy to provide uplift to the Reit. MUST intends to target cities that are business-friendly, have growing technology and healthcare industries as well as robust population growth.

Compared to IPO forecasts, UHU Reit's Q1 FY2021 distributable income was up 1.3 per cent while gross revenue and NPI were down 1.9 per cent and 1.8 per cent respectively. UHU Reit noted that, according to the National Retail Federation (NRF), US retail sales are expected to grow between 6.5 per cent and 8.2 per cent in 2021, underpinned by healthy consumer fundamentals, pent-up demand and widespread vaccination. This was evident in the new and renewal leases signed this quarter, most of which were food &amp; beverage and consumer services tenants.

The Reit also expects trends such as increase in consumer awareness of the benefits of self-storage, an increasingly mobile population and the decluttering of homes to create more efficient workspaces to continue even as the country transitions to a post-Covid environment.  REIT Watch is a weekly column on The Business Times, read the original version.



REIT Watch - Western S-Reits sanguine on post-Covid outlook

<div><em><strong>Non- SGX Report: These equity research reports are not written by the SGX</strong>.&nbsp;SGX supports the distribution of the research reports by external contributors. Please refer to the Disclaimer in the attached report.</em></div>
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<h2>ARA US Hospitality Trust</h2>
<h3>Get ready for the recovery</h3>
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<p>We believe that ARA US Hospitality Trust (SGX:XZL) will be on track for a recovery, thanks to its portfolio of select-service hotels that are domestic-oriented.</p>
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<p>Analyst: Yeo Hui Shi | Published on 22 Apr 2021</p>
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<li>ARA US Hospitality Trust (SGX:XZL) is a US hospitality trust that holds upscale select-service hotels predominantly located in suburban areas.</li>
<li>The US hotel market has seen a slight jump in overall occupancy and revenue per available room (RevPAR) – reaching a pandemic high. We believe that there is a high likelihood of ARA USHT’s distributable income recording a turnaround this year, paving way for a dividend resumption.</li>
<li>Select-service hotels have lower breakeven occupancy rate as compared to full-service hotels as majority of total revenue comes from rooms instead of amenities like restaurants and meeting spaces.</li>
<li>Occupancy rates of the Trust’s Hyatt and Marriott branded hotels benefit from guest loyalty programs, with members representing a significant portion of overall bookings before the pandemic. Branded hotels also tend to have higher cleanliness standards, providing greater assurance for guests.</li>
<li>We upgrade our target price to USD 0.63, representing an upside potential of 23.5% based on the closing price of USD 0.51 on 21 April 2021. Coupled with the estimated yields, the potential total return by end-2023 is 45.4%.</li>
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Non- SGX Report: These equity research reports are not written by the SGX.&nbsp;SGX supports the distribution of the research reports by external contributors. Please refer to the Disclaimer in the attached report.





ARA US Hospitality Trust
Get ready for the recovery








We believe that ARA US Hospitality Trust (SGX:XZL) will be on track for a recovery, thanks to its portfolio of select-service hotels that are domestic-oriented.




Analyst: Yeo Hui Shi | Published on 22 Apr 2021









ARA US Hospitality Trust (SGX:XZL) is a US hospitality trust that holds upscale select-service hotels predominantly located in suburban areas.
The US hotel market has seen a slight jump in overall occupancy and revenue per available room (RevPAR) – reaching a pandemic high. We believe that there is a high likelihood of ARA USHT’s distributable income recording a turnaround this year, paving way for a dividend resumption.
Select-service hotels have lower breakeven occupancy rate as compared to full-service hotels as majority of total revenue comes from rooms instead of amenities like restaurants and meeting spaces.
Occupancy rates of the Trust’s Hyatt and Marriott branded hotels benefit from guest loyalty programs, with members representing a significant portion of overall bookings before the pandemic. Branded hotels also tend to have higher cleanliness standards, providing greater assurance for guests.
We upgrade our target price to USD 0.63, representing an upside potential of 23.5% based on the closing price of USD 0.51 on 21 April 2021. Coupled with the estimated yields, the potential total return by end-2023 is 45.4%.









(Non-SGX Report) ARA US Hospitality Trust: Get Ready for the Recovery

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<p>ELEVEN smaller cap Reits in the iEdge S-Reit Index with market capitalisation under S$1 billion have all generated positive returns in Q1 2021. The 11 Reits posted 14.0 per cent total returns in the year-to-date (YTD) through to April 8, outperforming the index's 2.4 per cent total returns.</p>

<p>The top five best performing smaller cap Reits of the index in the YTD through to April 8 are: ARA Logos Logistics Trust (25.6 per cent), Sabana Shari'ah Compliant Reit (23.9 per cent), ARA US Hospitality Trust (22.2 per cent), First Reit and Lippo Malls Indonesia Retail Trust (both 16.9 per cent).</p>

<p>These five were also among the six best performing Reits in the overall iEdge S-Reit index, with Starhill Global Reit (market cap of S$1.3 billion) coming in fourth at 16.9 per cent total returns.</p>

<p>In terms of price-to-book ratios, the 11 smaller cap Reits trade at an average 0.86 times, while the index trades closer to 1.05 times.<br><br>
ARA Logos Logistics Trust (ALOG) has a portfolio of 27 logistics warehouses in Singapore and Australia valued at S$1.28 billion. In its recently published annual report, the Reit attributes its growth in 2020 to its new sponsor, Logos, which owns logistics spaces across the Asia-Pacific. ALOG's portfolio remained resilient and delivered a 3.4 per cent and 4.8 per cent growth in FY2020 gross revenue and net property income, respectively. The Reit also inked new leases and achieved positive rental reversion of 4.8 per cent in the financial year and has a gearing ratio of 39.0 per cent.<br><br>
Sabana Reit's portfolio has 18 Singapore properties across high-tech industrial, warehouse and logistics, chemical warehouse and logistics, and general industrial sectors with a total value of S$0.9 billion. In its FY2020 results, the Reit reported 2.29 cents for its H2 2020 distribution per unit (DPU), a 47.7 per cent increase year-on-year, bringing its full year DPU to 2.76 cents. Amid a challenging 2020, the Reit achieved positive rental reversion of 0.9 per cent and maintains a gearing ratio of 33.5 per cent. On March 10, the Reit announced that its NTP+ Mall at New Tech Park has received temporary occupancy permit and is set to open in Q2 2021.</p>

<p>ARA US Hospitality Trust (ARA H-Trust) is a stapled security with a portfolio of 41 upscale select-service hotels across 22 states in the United States operating under the Marriott and Hyatt brands. The trust notes in its latest annual report that despite having recorded a net property loss of US$5.0 million and nil distributable income in FY2020, all 41 hotels have since reopened in July 2020 and the trust has generated positive cash flows from operations for FY2020. ARA H-Trust remains confident in the long-term fundamentals of the US hospitality market. Its properties are oriented towards domestic transient leisure and business travellers and is less reliant on group and international demand.</p>

<p>SPH Reit, first to kick off the current reporting season for S-Reits, announced an improvement across its portfolio of retail malls. Gross revenue increased 4.9 per cent year-on-year and Q2 FY2021 DPU was issued at 1.24 cents, a 3.3 per cent increase quarter-on-quarter. SPH Reit noted that tenant sales at its Singapore malls have shown signs of recovery, following the phased lifting of safe distancing measures.</p>

<p>Frasers Logistics &amp; Commercial Trust (FLCT) has announced that it will join the Straits Times Index (STI) on April 13. FLCT will replace Jardine Strategic on the STI following Jardine Matheson's announcement on March 8 to simplify the parent company structure and acquire Jardine Strategic.<br><br><strong><em>REIT Watch is a weekly column on The Business Times, <a href="https://www.businesstimes.com.sg/companies-markets/s-reits-under-s1b-lead-sector-in-q1-2021">read</a> the original version.</em></strong></p>
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    Up for the year


ELEVEN smaller cap Reits in the iEdge S-Reit Index with market capitalisation under S$1 billion have all generated positive returns in Q1 2021. The 11 Reits posted 14.0 per cent total returns in the year-to-date (YTD) through to April 8, outperforming the index's 2.4 per cent total returns.

The top five best performing smaller cap Reits of the index in the YTD through to April 8 are: ARA Logos Logistics Trust (25.6 per cent), Sabana Shari'ah Compliant Reit (23.9 per cent), ARA US Hospitality Trust (22.2 per cent), First Reit and Lippo Malls Indonesia Retail Trust (both 16.9 per cent).

These five were also among the six best performing Reits in the overall iEdge S-Reit index, with Starhill Global Reit (market cap of S$1.3 billion) coming in fourth at 16.9 per cent total returns.

In terms of price-to-book ratios, the 11 smaller cap Reits trade at an average 0.86 times, while the index trades closer to 1.05 times.  
ARA Logos Logistics Trust (ALOG) has a portfolio of 27 logistics warehouses in Singapore and Australia valued at S$1.28 billion. In its recently published annual report, the Reit attributes its growth in 2020 to its new sponsor, Logos, which owns logistics spaces across the Asia-Pacific. ALOG's portfolio remained resilient and delivered a 3.4 per cent and 4.8 per cent growth in FY2020 gross revenue and net property income, respectively. The Reit also inked new leases and achieved positive rental reversion of 4.8 per cent in the financial year and has a gearing ratio of 39.0 per cent.  
Sabana Reit's portfolio has 18 Singapore properties across high-tech industrial, warehouse and logistics, chemical warehouse and logistics, and general industrial sectors with a total value of S$0.9 billion. In its FY2020 results, the Reit reported 2.29 cents for its H2 2020 distribution per unit (DPU), a 47.7 per cent increase year-on-year, bringing its full year DPU to 2.76 cents. Amid a challenging 2020, the Reit achieved positive rental reversion of 0.9 per cent and maintains a gearing ratio of 33.5 per cent. On March 10, the Reit announced that its NTP+ Mall at New Tech Park has received temporary occupancy permit and is set to open in Q2 2021.

ARA US Hospitality Trust (ARA H-Trust) is a stapled security with a portfolio of 41 upscale select-service hotels across 22 states in the United States operating under the Marriott and Hyatt brands. The trust notes in its latest annual report that despite having recorded a net property loss of US$5.0 million and nil distributable income in FY2020, all 41 hotels have since reopened in July 2020 and the trust has generated positive cash flows from operations for FY2020. ARA H-Trust remains confident in the long-term fundamentals of the US hospitality market. Its properties are oriented towards domestic transient leisure and business travellers and is less reliant on group and international demand.

SPH Reit, first to kick off the current reporting season for S-Reits, announced an improvement across its portfolio of retail malls. Gross revenue increased 4.9 per cent year-on-year and Q2 FY2021 DPU was issued at 1.24 cents, a 3.3 per cent increase quarter-on-quarter. SPH Reit noted that tenant sales at its Singapore malls have shown signs of recovery, following the phased lifting of safe distancing measures.

Frasers Logistics &amp; Commercial Trust (FLCT) has announced that it will join the Straits Times Index (STI) on April 13. FLCT will replace Jardine Strategic on the STI following Jardine Matheson's announcement on March 8 to simplify the parent company structure and acquire Jardine Strategic.  REIT Watch is a weekly column on The Business Times, read the original version.



REIT Watch - S-Reits under S$1b lead sector in Q1 2021

<p><em><strong>Non- SGX Report: These equity research reports are not written by the SGX</strong></em>.&nbsp;SGX supports the distribution of the research reports by external contributors. Please refer to the Disclaimer in the attached report.</p>
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<p>Company Update for FY2020 Results</p>
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<h2>ARA US Hospitality Trust</h2>
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<p><strong>COMPANY DESCRIPTION</strong><br>ARA US Hospitality Trust (ARA H-Trust or the Group) is a Singapore-listed stapled group comprising ARA US Hospitality Property Trust (ARA H-REIT) and ARA US Hospitality Management Trust (ARA H-BT). The Group’s current portfolio comprises 41 Marriot and Hyatt-branded upscale select-service hotels that span 22 states in the United States (US).</p>
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<p><strong>SUMMARY</strong><br>Owing to the impact of COVID-19, ARA H-Trust’s financial performance was severely impacted during the financial year ended 31 December 2020 (FY2020). Owing to significant declines in hotel occupancies and temporary hotel closures, the Group’s portfolio generated revenue of US$78.2 million in FY2020. With the Group’s efforts to reduce operating costs, a gross operating profit of US$12.7 million was achieved. However, an after-tax net loss of US$94.5 million was recorded for the period, partially due to a revaluation deficit of US$67.0 million in relation to property, plant &amp; equipment (PPE). This translated to a loss per stapled security of 16.65 cents. No distributable income was reported for the period after distribution adjustments.</p>
<p><strong>RECOMMENDATION</strong><br>Since our last company update on 29 August 2020, we note that ARA H-Trust’s share price has rebounded strongly. While the share price has fluctuated, it recently reached US$0.555 which is above the target price of US$0.493 in our last company update. On valuation terms, our peer comparison analysis shows that ARA H-Trust’s current P/B ratio of 0.85x is lower than the peer average P/B of 0.93x. This could suggest that ARA H-Trust is potentially undervalued at the current share price of US$0.525. Adopting a relative valuation approach, we estimate a target price of US$0.577 if ARA H-Trust were to trade at the peer average P/B multiple of 0.93x. This current target price would represent an upgrade from our previous target price of US$0.493 in our last company update. Meanwhile, we note that the US hotel market is expected to rebound in 2021 with the re-emergence of leisure travel demand. At the same time, business travel is travel is expected to begin a slow return in the second half of 2021. Nonetheless, a full recovery in travel could take a few years and this could weigh on the recovery of the Group’s portfolio performance. Given the above, we will now issue a neutral recommendation on ARA H-Trust and our current target price is US$0.577.</p>
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Non- SGX Report: These equity research reports are not written by the SGX.&nbsp;SGX supports the distribution of the research reports by external contributors. Please refer to the Disclaimer in the attached report.

Company Update for FY2020 Results

ARA US Hospitality Trust

COMPANY DESCRIPTION ARA US Hospitality Trust (ARA H-Trust or the Group) is a Singapore-listed stapled group comprising ARA US Hospitality Property Trust (ARA H-REIT) and ARA US Hospitality Management Trust (ARA H-BT). The Group’s current portfolio comprises 41 Marriot and Hyatt-branded upscale select-service hotels that span 22 states in the United States (US).

SUMMARY Owing to the impact of COVID-19, ARA H-Trust’s financial performance was severely impacted during the financial year ended 31 December 2020 (FY2020). Owing to significant declines in hotel occupancies and temporary hotel closures, the Group’s portfolio generated revenue of US$78.2 million in FY2020. With the Group’s efforts to reduce operating costs, a gross operating profit of US$12.7 million was achieved. However, an after-tax net loss of US$94.5 million was recorded for the period, partially due to a revaluation deficit of US$67.0 million in relation to property, plant &amp; equipment (PPE). This translated to a loss per stapled security of 16.65 cents. No distributable income was reported for the period after distribution adjustments.
RECOMMENDATION Since our last company update on 29 August 2020, we note that ARA H-Trust’s share price has rebounded strongly. While the share price has fluctuated, it recently reached US$0.555 which is above the target price of US$0.493 in our last company update. On valuation terms, our peer comparison analysis shows that ARA H-Trust’s current P/B ratio of 0.85x is lower than the peer average P/B of 0.93x. This could suggest that ARA H-Trust is potentially undervalued at the current share price of US$0.525. Adopting a relative valuation approach, we estimate a target price of US$0.577 if ARA H-Trust were to trade at the peer average P/B multiple of 0.93x. This current target price would represent an upgrade from our previous target price of US$0.493 in our last company update. Meanwhile, we note that the US hotel market is expected to rebound in 2021 with the re-emergence of leisure travel demand. At the same time, business travel is travel is expected to begin a slow return in the second half of 2021. Nonetheless, a full recovery in travel could take a few years and this could weigh on the recovery of the Group’s portfolio performance. Given the above, we will now issue a neutral recommendation on ARA H-Trust and our current target price is US$0.577.





(Non-SGX Report) Company Update for FY2020 Results: ARA US Hospitality Trust

<p><em><strong>Non- SGX Report: These equity research reports are not written by the SGX.</strong>&nbsp;SGX supports the distribution of the research reports by external contributors. Please refer to the Disclaimer in the attached report.</em></p>
<p>Singapore Company Update</p>
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<h2>ARA US Hospitality Trust</h2>
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<h3>Recovery within reach</h3>
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<p><strong>Investment Thesis</strong></p>
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<p><strong>Attractive dividend yield in excess of 10% once recovery takes hold.</strong> With the rollout of COVID-19 vaccines in the US, we believe that the worst for the Trust is over but investors are not pricing in its ability to double its earnings over the next two years. We project a multi-year RevPAR growth trend and 4-year normalisation period, delivering FY21F and FY22F yields of 5.9% and 12.8% respectively. A swing towards pre- COVID-19 RevPARs in the medium term implies AUHT can offer dividend yields at close to c.15%, one of the highest among peers.</p>
<p><strong>Segment with strong growth potential.</strong> AUHT is positioned mainly in the upscale select-service hotels subsector which has proven to have more efficient operational metrics with better operating margins (GOP of 51.6% as compared to 39.3% for full-service branded hotels). This means AUHT has the ability to maintain profitability at lower room rates while peers are likely to remain in the red in the current nascent recovery period.</p>
<p><strong>Focus on Hyatt and Marriott brand hotels implies consistent brand quality.</strong> We believe that the psychological impact on consumer travel behaviour as a result of COVID-19 will be long-lasting. Cleanliness ratings are likely to become a new key standard in the lodging market in a post COVID-19 world, which guests could more likely associate with trusted brands like Hyatt and Marriott.</p>
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<p><strong>Valuation</strong>:<br>Our DCF-derived TP of US$0.69 is based on WACC of 7.62% and terminal growth rate of 2.25%.</p>
<p><strong>Where we differ:</strong><br>We are more optimistic on AUHT’s recovery trajectory and we project a multi-year RevPAR growth trend to drive DPU and a 4-year normalisation period.</p>
<p><strong>Key Risks to Our View:</strong><br>Resurgence of COVID-19 pandemic, further softening in the US economy and a potentially riskier earnings structure are key risks.</p>
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Non- SGX Report: These equity research reports are not written by the SGX.&nbsp;SGX supports the distribution of the research reports by external contributors. Please refer to the Disclaimer in the attached report.
Singapore Company Update

ARA US Hospitality Trust



Recovery within reach




Investment Thesis

Attractive dividend yield in excess of 10% once recovery takes hold. With the rollout of COVID-19 vaccines in the US, we believe that the worst for the Trust is over but investors are not pricing in its ability to double its earnings over the next two years. We project a multi-year RevPAR growth trend and 4-year normalisation period, delivering FY21F and FY22F yields of 5.9% and 12.8% respectively. A swing towards pre- COVID-19 RevPARs in the medium term implies AUHT can offer dividend yields at close to c.15%, one of the highest among peers.
Segment with strong growth potential. AUHT is positioned mainly in the upscale select-service hotels subsector which has proven to have more efficient operational metrics with better operating margins (GOP of 51.6% as compared to 39.3% for full-service branded hotels). This means AUHT has the ability to maintain profitability at lower room rates while peers are likely to remain in the red in the current nascent recovery period.
Focus on Hyatt and Marriott brand hotels implies consistent brand quality. We believe that the psychological impact on consumer travel behaviour as a result of COVID-19 will be long-lasting. Cleanliness ratings are likely to become a new key standard in the lodging market in a post COVID-19 world, which guests could more likely associate with trusted brands like Hyatt and Marriott.



Valuation: Our DCF-derived TP of US$0.69 is based on WACC of 7.62% and terminal growth rate of 2.25%.
Where we differ: We are more optimistic on AUHT’s recovery trajectory and we project a multi-year RevPAR growth trend to drive DPU and a 4-year normalisation period.
Key Risks to Our View: Resurgence of COVID-19 pandemic, further softening in the US economy and a potentially riskier earnings structure are key risks.






(Non-SGX Report) ARA US Hospitality Trust: Recovery Within Reach

Singapore

Acrophyte Hospitality Trust is a hospitality stapled group that invests in income-producing real estate assets, primarily upscale select-service hotels, located in the United States. Its portfolio includes properties franchised under brands like Hyatt Place and Hyatt House. The trust was incorporated on August 29, 2018, and is headquartered in Singapore.

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Acrophyte Hospitality Trust (ARAUS SP)

REIT Watch - Western S-Reits sanguine on post-Covid outlook

WITHIN Singapore's Reits & Property Trusts (S-Reits) that are listed for trading, there are five (ARA US Hospitality Trust,...

Singapore Exchange Ltd (SGX)

(Non-SGX Report) ARA US Hospitality Trust: Get Ready for the Recovery

Non- SGX Report: These equity research reports are not written by the SGX. SGX supports the distribution of the research reports by external...

Singapore Exchange Ltd (SGX)

REIT Watch - S-Reits under S$1b lead sector in Q1 2021

ELEVEN smaller cap Reits in the iEdge S-Reit Index with market capitalisation under S$1 billion have all generated positive...

Singapore Exchange Ltd (SGX)

(Non-SGX Report) Company Update for FY2020 Results: ARA US Hospitality Trust

Non- SGX Report: These equity research reports are not written by the SGX. SGX supports the distribution of the research reports by external...

Singapore Exchange Ltd (SGX)

(Non-SGX Report) ARA US Hospitality Trust: Recovery Within Reach

Non- SGX Report: These equity research reports are not written by the SGX. SGX supports the distribution of the research reports by external...

Singapore Exchange Ltd (SGX)

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