ARA US Hospitality Trust : XZL 0% (ARA H-Trust) is refinancing US$270.8 million of its debt facilities at an initial public offering, of which US$10 million of revolving facilities expired in 2022 and were previously refinanced into separate loan facilities.

 

The stapled group&rsquo s managers said on Wednesday (Sep 27) that the trust currently has in place a US$244.3 million three-year term loan facility and a US$8.5 million four-year term loan facility maturing in 2024.

 

It also has a US$8 million letter of credit facility maturing next year, bringing the overall debt facilities to be refinanced to about US$260.8 million.

 

Under an amended facility agreement effective Sep 29, the term loan facilities will be reallocated and extended into a US$198.5 million three-year term loan facility maturing in September 2026, and a US$51 million term loan facility maturing in September 2027 respectively.

 

The maturity date of the existing US$8 million letter of credit facility will also be extended to September 2026.

 

In addition, a new US$30 million three-year revolving credit facility maturing in September 2026 will be granted.

 

A mandatory pre-payment event will kick in if ARA Asset Management, who is the sponsor, ceases to own at least 51 per cent of the issued share capital in the stapled securities&rsquo managers without the consent of the majority lenders.

 

There will also be a pre-payment imposed if ARA Business Trust Management ceases to be, or is removed as, the trustee manager, and a subsidiary of ARA is not appointed as the replacement manager.

 

Likewise, the pre-payment will be imposed if ARA Trust Management ceases to be, or is removed as, the manager of ARA US Hospitality Property Trust, and a subsidiary of ARA is not appointed as the replacement manager.

 

The managers estimated that the aggregate level of loan facilities and debt securities of ARA H-Trust that may be affected in this case stands at US$374.5 million, excluding interest.

Stapled group must shake off negative sentiment as a US-focused trust, says Lee Jin Yong, CEO of its managers

 

ARA US Hospitality Trust : XZL 0% (ARA H-Trust), whose portfolio comprises about three dozen hotels across the United States, is one of five actively traded US-focused property trusts listed in Singapore.

 

Lee Jin Yong, chief executive officer of its managers, appears keen for the trust to be treated as separate from its US peers.

 

&ldquo It&rsquo s a bit frustrating because you&rsquo re doing everything right and improving performance, yet the market is not recognising that,&rdquo he said. &ldquo We&rsquo re seen as a US strategy, which we clearly are, but we&rsquo re distinct because we&rsquo re a different asset class than most of the other US strategies which are office-focused.&rdquo

 

Out of ARA H-Trust&rsquo s four actively traded US peers, three &ndash Keppel Pacific Oak US Reit : CMOU +1.67%, Prime US Reit : OXMU -6.98% and Manulife US Reit : BTOU +2.96% &ndash are in the office sector. The fourth, United Hampshire US Reit : ODBU -1.14%, is in the retail space.

 

&ldquo We&rsquo re showing continuous improvement &ndash year-over-year and quarter-over-quarter &ndash but our security price is now&hellip where we were in 2020 before we had the (Covid-19) vaccines,&rdquo Lee said.

 

Stapled securities of ARA H-Trust &ndash a stapled group comprising ARA US Hospitality Property Trust, a real estate investment trust (Reit) and ARA US Hospitality Management Trust, a business trust &ndash closed at US$0.335 on Jun 1.

 

The stapled securities are trading at 62 per cent below their initial public offering (IPO) price of US$0.88 and at a 56 per cent discount to ARA H-Trust&rsquo s net asset value per stapled security of US$0.77 as at Mar 31.

 

In the year to date, the counter has lost 4.3 per cent. Total returns with dividends reinvested stood at negative 0.2 per cent over the period.

 

Red, white and bruised

ARA H-Trust made its trading debut on the Singapore Exchange mainboard in May 2019, in the same month as another trust focused on US-based hospitality assets, Eagle Hospitality Trust (EHT).

 

To a casual observer, the similarities were striking.

 

&ldquo Back then, people didn&rsquo t see the differences between us and Eagle,&rdquo Lee said.

 

He pulled out an old clipping of a commentary in The Business Times, titled &ldquo Hard to pick clear winner between two upcoming US hotel Reit listings&rdquo .

 

&ldquo Articles like this, where they said: &lsquo They&rsquo re about the same thing. You could pick either one, and it&rsquo s the same bet&rsquo . I couldn&rsquo t believe it,&rdquo he said. &ldquo We don&rsquo t have a master lease, we&rsquo re well-diversified, we don&rsquo t have concentration risks&hellip We&rsquo re so different.&rdquo

 

EHT was suspended from trading barely a year into its listing, as a string of scandals surfaced &ndash including a gross overvaluation of its flagship asset, The Queen Mary.

 

Local investors, most of whom never set eyes on the property half a world away, were shocked when it was eventually uncovered that the ship-turned-hotel was in a state of disrepair and at risk of sinking.

 

The EHT saga would rock the confidence of investors in Singapore-listed Reits with assets overseas.

 

For ARA H-Trust, which occupied the same geography and asset-class sector as EHT, market sentiment would be particularly harsh.

 

&ldquo When they tanked, and they lost their entire portfolio, everyone was like: &lsquo You guys must be next in line&rsquo &ndash without understanding the differences,&rdquo Lee said.

 

To make matters worse, ARA H-Trust was hit around the same time by another unforeseen event: the Covid-19 pandemic.

 

&ldquo It was a lot of hard work, a lot of sleepless nights, because no one&rsquo s ever seen a dislocation like that. Even the global financial crisis (GFC) was almost a cakewalk (in comparison),&rdquo Lee said.

 

&ldquo The Covid downturn was three times the magnitude of GFC, in terms of revenue decline &ndash for the industry, not just us,&rdquo he added.

 

ARA H-Trust would survive the pandemic, but soon became entangled with more bad news for its US-focused peers.

 

Employees became reluctant to return to the office after getting used to working from home for more than two years. As physical occupancy fell, so did market confidence in the US office Reits.

 

At the same time, sentiment for US-focused Reits was dampened by interest-rate hikes and forecasts of a potential recession in the US.

 

&ldquo The fortunes of the office market and hotel market are quite divergent,&rdquo Lee said. &ldquo But when people feel negative about US office &ndash not the whole universe of commercial real estate &ndash they kind of lump us in. And I think that&rsquo s what is a little bit frustrating about where our security price is today.&rdquo

 

&ldquo We operate in different asset classes, and the outlook for our asset classes are very, very different,&rdquo he added.

 

Hot on hotels

The way Lee sees it, the US travel and lodging sectors are poised to benefit from a paradigm shift in consumer behaviour.

 

&ldquo The restrictions in order to calm the pandemic also removed a lot of people&rsquo s freedoms. One of the dynamics we see post-Covid, particularly in the travel and lodging industry, is that the appetite for travel is enormous,&rdquo he said.

 

&ldquo The reopening and lifting of Covid restrictions unleashed a tonne of pent-up travel demand. And that demand, in my view, has now pivoted,&rdquo he added. &ldquo Travel was once considered to be somewhat discretionary&hellip Now, when people think about travel&hellip it&rsquo s a basic right.&rdquo

 

For the full year ended December 2022, ARA H-Trust posted a 29.3 per cent increase in revenue to US$169 million. Net property income (NPI) rose 66.4 per cent to US$41.4 million.

 

Distributable income soared to US$17.5 million, from US$2 million the year before. Distribution per stapled security (DPS) jumped in tandem &ndash to US$0.03054 for FY2022, from US$0.00355 the previous year.

 

The momentum carried over into the latest quarter ended March 2023, as total revenue climbed 10 per cent year on year to US$36.2 million, and NPI rose 19 per cent to US$6.4 million.

 

The improvements were largely attributed to a continued recovery in the US lodging market, despite increasingly bearish sentiment amid inflation concerns and risks of an economic slowdown.

 

The recovery in lodging demand was led by pent-up travel demand from the leisure segment.

 

&ldquo The paradigm has changed. People say: &lsquo Look, I&rsquo m going to travel. And I&rsquo m going to travel even when I don&rsquo t feel super rich or comfortable, because travelling now is something that&rsquo s a very important part of my life&rsquo ,&rdquo Lee said. &ldquo That, to me, is an interesting structural change that benefits lodging.&rdquo

 

ARA H-Trust has also gained from what has been called &ldquo bleisure&rdquo &ndash a blend of business and leisure travel that combines a work trip with an extended holiday.

 

&ldquo Bleisure is kind of a post-Covid dynamic,&rdquo Lee said. &ldquo We are taking advantage of the new work-from-home culture and capturing that demand. And it&rsquo s also benefited our style of hotels that are in our trust, because we have a lot of extended-stay hotels.&rdquo

 

Lee anticipates more upside for the trust. While the recovery has been spearheaded by leisure travellers, he said the industry is now seeing the return of business travellers and the group travel segment.

 

He added that ARA H-Trust&rsquo s hotels are not only popular with hotel guests, but with investors as well.

 

&ldquo The average price point is somewhere between US$15 million and US$30 million for an asset trade,&rdquo Lee said. &ldquo That size of trade is accessible not only for institutional buyers, but also for family offices and high-net-worth individuals. So, it&rsquo s the most liquid segment in the market.&rdquo

 

&ldquo Our view is that the market is flush with those opportunities for us to add on to the portfolio. We just need the capital to get there,&rdquo he added. &ldquo And our belief is that we will get there. Barring unforeseen circumstances, we anticipate continuing to deliver good results. We just need the market to recognise why we&rsquo re so different.&rdquo

 

SINGAPORE-LISTED real estate investment trust (S-Reit) acquisitions continue into 2023 with ARA US Hospitality Trust : XZL -1.37%&rsquo s recent proposed acquisition of a Colorado Hilton-branded hotel in the US for US$29 million. This was after CapitaLand India Trust : CY6U 0% (Clint) had announced two more acquisitions and a memorandum of understanding (MOU) in December 2022 to end the year.

 

ARA US Hospitality Trust announced the proposed acquisition of Home2 Suites by Hilton Colorado Springs South for US$29 million on Jan 4, 2023. The property is a recently built select-service, extended-stay hotel with 119 rooms located at Colorado Springs, a popular tourist attraction at the centre of the Rocky Mountain recreation activities. Revenue per available room (RevPAR) in the Colorado Springs area has exceeded pre-pandemic levels, and the hotel&rsquo s RevPAR of US$137 outperforms properties in the area.

 

The acquisition is expected to be yield accretive and the pro forma distribution per stapled security is estimated to increase from 0.355 US cents to 0.784 cents, assuming the transaction was completed on Jan 1, 2021. The acquisition is expected to be completed in the first quarter of 2023.

 

In December, Clint announced that it was acquiring a freehold site in Chennai for S$14.1 million to develop its third data centre in India. Clint will invest an estimated S$328.8 million to acquire the site and develop a state-of-the-art data centre in phases over the next four to five years which will have a power capacity of 55 megawatts (MW) to host customers such as global technology giants and cloud service providers, and large domestic enterprise clients.

 

Clint also announced a proposed acquisition of International Tech Park Pune in India for S$221.9 million. The tech park has a total floor area of 2.3 million square feet (sq ft) spread across four buildings and is close to 100 per cent leased to prominent IT and IT-enabled services tenants such as Infosys, Synechron Technologies, and Tata Consultancy Services. The acquisition forms part of the planned pipeline of assets being developed by the sponsor and provides Clint with the ability to create further scale in its portfolio in India. It also deepens the trust&rsquo s presence in Pune, which provides it with significant operational advantages.

 

Aside from the two acquisitions, Clint also signed an MOU with the Telangana Government to develop a data centre at the trust&rsquo s International Tech Park Hyderabad, located at Madhapur. Leveraging CapitaLand Group&rsquo s data centre expertise, the data centre will have a built-up area of 250,000 sq ft and 36 MW of power capacity, as well as incorporate the latest technologies in cooling and security, allowing it to serve hyperscale players and large enterprises in the region. The project is estimated to entail an investment of S$210 million to be deployed over the next three to five years.

ARA US Hospitality Trust : XZL -4.05% (ARA H-Trust) posted a net property income of US$11.9 million for its third quarter ended Sep 30, an improvement from the US$9.2 million recorded in the year-ago period.

 

Gross revenue, meanwhile, stood at US$48.7 million, up from the US$41.1 million posted in the year before. This comes as the stapled group sees &ldquo strong recovery momentum&rdquo in its second and third quarters of 2022, the managers said. 

 

Portfolio occupancy was 71 per cent for the quarter and the trust recorded a revenue per available room (RevPAR) of US$97. 

 

For the year to date, net property income was US$33 million, up 80 per cent from US$18.3 million in the corresponding period a year earlier. Gross revenue was up 38 per cent to US$130 million, from US$93.9 million the year before. 

 

Occupancy was 9.5 percentage points higher at 65.4 per cent, while RevPAR rose 39 per cent year on year to US$85. 

 

Its aggregate leverage ratio stood at 43.3 per cent as at Sep 30, while net gearing is 39.3 per cent. There are no refinancing requirements for the rest of FY2022 and FY2023, the managers said. 

 

The managers noted that year-to-date travel volumes had improved to 95 per cent of 2019 levels despite inflation, capacity constraints and higher travel costs. 

ARA US Hospitality Trust : XZL -1.05% (ARA H-Trust) has agreed to sell a 4-property portfolio of Hyatt Place hotels for US$32.5 million to US-based real estate investment firm Three Wall Capital.

 

The consideration represents a 3.2 per cent premium above the portfolio&rsquo s independent market valuation of US$31.5 million as at end-2021, said the stapled group&rsquo s managers in a bourse filing on Thursday (Jun 30).

 

Completion of the sale is expected to take place in Q3 of 2022. Aside from general working capital requirements, the estimated US$31.4 million of resultant net proceeds will be used to reduce existing bank borrowings to improve ARA H-Trust&rsquo s aggregate leverage. 

 

The portfolio comprises Hyatt Place Pittsburgh Cranberry in Pennsylvania Hyatt Place Birmingham Inverness in Alabama as well as Hyatt Place Cincinnati Northeast and Hyatt Place Cleveland Independence, which are both located in Ohio.

 

According to the stapled group&rsquo s managers, the 4 properties are non-core assets with declining historical performance and located in sub-markets with declining demand, where asset enhancement is not expected to boost cashflow yield in the future year.

 

Divesting these properties will allow ARA H-Trust to free up capital in the process of optimising and rebalancing its portfolio while strengthening the stapled group&rsquo s balance sheet for long-term growth, said the managers.

 

For illustrative purposes, distribution per stapled security (DPS) for FY2021 would have been 0.495 US cent had the sale been completed on Jan 1, 2021 as opposed to a DPS of 0.355 cent before the proposed sale &ndash representing DPS accretion of 39.4 per cent.

 

Pro-forma net property income (NPI) would have been US$24 million as opposed to an audited FY2021 NPI of US$24.9 million, while distributable income would have been US$2.8 million compared to US$2 million.

 

ARA US Hospitality Trust (ARA H-Trust) ARA HTrust USD : XZL +2.08% is proposing to divest Hyatt Place Chicago Itasca for US$7.75 million to family-owned corporation IHP Hospitality Group, the stapled group' s managers announced on Thursday (Mar 17).

 

The consideration will be satisfied wholly in cash and represents a slight 0.6 per cent discount to the asset' s independent valuation of US$7.8 million as at end-2021.

 

IHP Hospitality Group has paid a non-refundable deposit of US$0.5 million after entering into a conditional purchase and sale agreement with a subsidiary of ARA H-Trust as the vendor.

 

Upon completion, net proceeds from the divestment will be used to pare down existing bank borrowings to improve ARA H-Trust' s aggregate leverage ratio, aside from general working capital requirements.

 

Hyatt Place Chicago Itasca is a 6-storey hotel with 126 rooms. It commenced operations in 1996 and was last renovated in 2015.

 

Located at Arlington Heights Road in Itasca, a suburb of Chicago, the freehold property is about 19.3 kilometres (km) from the O' Hare International Airport and 43km away from downtown Chicago.

 

It accounts for 1.1 per cent of ARA H-Trust' s total portfolio as at end-2021, and is among the oldest and smallest assets within the portfolio.

 

In a regulatory filing, ARA H-Trust' s managers said selling the asset will help to optimise ARA H-Trust' s portfolio as they anticipate the hotel to have a comparatively longer road to recovery. This is considering the asset' s location in a market with declining economic conditions, exacerbated by the Covid-19 pandemic.

 

The property is believed to require sizeable capital expenditure outlays relative to its value over the next few years, being one of the oldest assets in the portfolio, they added.

 

Divesting Hyatt Place Chicago Itasca is also expected to free up capital for ARA H-Trust, which may be re-deployed to either accretive and higher-yield acquisitions, or pare down existing bank borrowings to improve ARA H-Trust' s aggregate leverage ratio.

 

For illustrative purposes, the managers estimate ARA H-Trust' s distribution per stapled security (DPS) for the financial year ended Dec 31, 2021 to have been higher at 0.371 US cents as compared to the actual FY2021 DPS of 0.355 US cents, had the sale been completed on Jan 1, 2021.

 

Pro-forma net asset value (NAV) per unit would have remained unchanged at US$0.70.

[SINGAPORE] ARA US Hospitality Trust (ARA H-Trust) posted a distribution income of US$2 million for the full year ended Dec 31, 2021, which works out to a distribution per stapled security (DPS) of 0.355 US cent.

 

This was unlike the previous year, when there was no distributable income.

 

Net property income came in at US$24.9 million in FY2021, reversing from a net property loss of US$5 million the previous year.

 

Revenue was up 67.2 per cent to S$130.7 million for the full-year, from S$78.2 million the year before.

 

Operating profit jumped 218.7 per cent to US$40.5 million for FY2021 versus the US$12.7 million the previous year.

 

The ARA H-Trust portfolio had benefited from recovering domestic travel and hotel demand, which led to sequential improvements in quarterly performance across all brands, it said in a statement.

 

For FY2021, the portfolio posted an average occupancy and average daily rate of 57.1 per cent and US$112, respectively.

 

Lee Jin Yong, chief executive of the managers, said: " The US economy is booming as the disruptions from Covid-19 diminish and the pandemic transitions to an endemic. The expected return of corporate and group demand will further bolster recovery and stoke renewed optimism for the US lodging industry in 2022 and beyond."

 

On Feb 23, 2022, the managers also successfully obtained new 3-year unsecured loan facilities amounting to US$95 million from the existing lenders, to refinance loans maturing in FY2022 and FY2023.

 

ARA H-Trust, which listed on the Singapore Exchange in May 2019, is a stapled group comprising ARA US Hospitality Property Trust, a real estate investment trust, and ARA US Hospitality Management Trust, a business trust.

ARA Logos Logistics Trust (ARA Logos) ARA LOGOS Log Tr: K2LU 0% will likely see growth from strong leasing enquiries at its Singapore and Australia portfolios, but it may also be a takeover target of ESR-Reit, UOB Kay Hian (UOBKH) said on Friday.

 

The real estate investment trust (Reit) has " twin engines of growth" , said analyst Jonathan Koh. He expects its Singapore portfolio will benefit from growth in third-party logistics and e-commerce sectors, while demand for its Australia portfolio could also be boosted by omni-channel retailers.

 

UOBKH maintained its " buy" call on the stock, and raised its target price to S$1.07 from S$1.02, noting that the Reit will likely provide an attractive distribution yield of 6 per cent for 2022.

 

Units of ARA Logos closed unchanged at S$0.905 on Friday.

 

Koh had raised estimates for ARA Logos' distribution per unit for 2022 by 2.6 per cent on higher occupancy in Singapore, noting that the higher unit price also lowers dilution from paying management fees through the issue of new units.

 

He also expects the capitalisation rate of the Reit' s Australia portfolio to drop to 4.5 per cent from 5.1 per cent, which would increase its net asset value per unit by 7 per cent by Dec 2021. A lower capitalisation rate - an indicator for the expected rate of return generated on a real estate investment property - means better valuation and prospect of returns with lower risks.

 

Additionally, Koh noted that ARA Logos has actively worked on potential acquisitions, which could involve properties in Singapore and Tier-2 cities in China. Even on the fundraising end, the Reit' s distribution yield has compressed to 5.6 per cent from 8.1 per cent earlier this year, which makes equity fundraising to finance acquisitions more feasible.

 

ARA Logos, however, could be taken over by ESR-Reit, after ESR Cayman - which owns 67 per cent of ESR-Reit' s manager - completes its acquisition of ARA Asset Management, a majority shareholder of ARA Logos' manager.

 

In August, Hong Kong-listed ESR Cayman said that it would buy the entire share capital of ARA Asset Management for US$5.2 billion, resulting in it indirectly owning the manager of ARA Logos.

 

ESR-Reit ESR-REIT: J91U -1.08%, which is pivoting its investment strategy towards acquiring logistics assets, would therefore likely issue a takeover offer for ARA Logos due to their overlapping investment mandates, given that the former is also 1.4 times larger in terms of market capitalisation, according to UOBKH.

 

DBS Group Research analyst Geraldine Wong has maintained &ldquo buy&rdquo on ARA US Hospitality Trust (ARAHT) as she deems the REIT&rsquo s recovery to be &ldquo on track&rdquo .

 

&ldquo We expect a sustained recovery for ARAHT on the back of a summer leisure demand spillover into 2HFY2021 and the return of corporate travel,&rdquo she writes in an Aug 20 report.

 

That said, Wong has reduced her target price estimate to 75 US cents ($1.02) from 79 US cents previously, as she reduces her earnings estimates slightly.

 

&ldquo We were too optimistic previously,&rdquo she explains.

The new target price implies a 48% upside and an &ldquo attractive&rdquo FY2022 yield of 9.5%.

 

Wong, however, remains optimistic on the REIT&rsquo s prospects as she still sees a doubling of cashflows in 2HFY2021 and a further recovery in FY2022.

 

&ldquo We [still] see scope for occupancy and rates to move further upwards towards normalised levels,&rdquo she says.

&ldquo Operational data sector-wide also seems to support this steady recovery to normalcy,&rdquo she adds.

 

To Wong, ARAHT is well-positioned in the select-service and extended-stay segments, which are favoured over the full-service segment, given the more labour-efficient operating model.

 

&ldquo We thus see profits and distributions rebound quicker than the other segments on the back of a lower cost front and consumer preferences, benefitting ARAHT,&rdquo she writes.

On the back of a return in travel demand, an improvement in cashflows in the second-half of FY2021 will support higher portfolio valuations.

 

The catchup in valuations and lower gearing will be positive catalysts for the counter.

&ldquo Valuers have opined that the fair value for ARAHT portfolio should be US$888 million upon normalisation in 2024 (vs US$687 million as at end December 2020), bringing the gearing level down to 40% in the medium term,&rdquo says Wong.

 

ARA US Hospitality Trust (ARA H-Trust) on Thursday posted a net property income (NPI) of US$9.1 million for the six months ended June 30, reversing from a net property loss of US$2 million in the year-ago period, as the stapled group continues to recover from the pandemic.

 

Revenue was up 34.3 per cent to US$52.8 million, from US$39.3 million the year before, ARA H-Trust' s managers said in a press statement.

 

Its managers reported no distributable income for the period, after deducting reserves set aside for capital expenditure for the Jan 1 to June 30 period. This relates to routine capital asset improvements and refurbishments for hotel properties.

 

The income before reserves set aside for capital expenditure amounted to around US$2.8 million, after deducting loan interest expenses, other trust expenses and fees payable to the Reit trustee and managers.

 

Net asset value per stapled security as at June 30, 2021, was US$0.61, down slightly from US$0.62 as at Dec 31, 2020. This was mainly due to accounting depreciation of the properties, partially uplifted by the income generated from hotel operations in H1 2021, the managers said.

 

The managers said the ARA H-Trust portfolio " picked up momentum" from rising domestic travel and hotel demand, leading to sequential improvements in quarterly performance across all brands. 

 

In the first half, average occupancy and average daily rate stood at 51.2 per cent and US$101 respectively. Revenue per available room was US$52. 

 

The stapled group' s aggregate leverage stood at 49 per cent. There are no refinancing requirements until 2022, the managers added. They have also secured loan covenant waivers from Singapore-based relationship banks up to December 2021. 

 

The managers expect the US hospitality market to further strengthen and rebound closer to pre-pandemic levels in the months ahead as the summer travel surge continues. There have also been emerging signs of a return in business travel as more companies approve corporate travel. 

 

Lee Jin Yong, chief executive of the managers, said: " As our portfolio is oriented towards domestic leisure and business travellers, we anticipate that the trust' s performance will be in the vanguard of the US hospitality market recovery."

 

ARA H-Trust is a pure-play US upscale select-service hospitality trust that was listed on the Singapore Exchange in May 2019. It is a stapled group comprising ARA US Hospitality Property Trust, a real estate investment trust, and ARA US Hospitality Management Trust, a business trust.