Ascendas Hospitality Trust (ASCHT SP) - DBS Research 2018-01-30: Disposal Of China Hotels At Double Its Book Value

Ascendas Hospitality Trust (ASCHT SP) - DBS Vickers 2018-01-30: Disposal Of China Hotels At Double Its Book ASCENDAS HOSPITALITY TRUST Q1P.SI

Ascendas Hospitality Trust (ASCHT SP) - Disposal Of China Hotels At Double Its Book

  • Beijing Novotel Sanyuan and Ibis Beijing Sanyuan sold for RMB1,156.4m and on an exit NPI yield of 3.3%.
  • Proforma NAV per unit to jump to S$1.02 from S$0.89.
  • Proceeds to be primarily used to repay debt until next acquisition identified.
  • Maintain BUY with Target Price of S$0.91.

What’s New

  • Ascendas Hospitality Trust (ASCHT) has entered into a sale and purchase agreement for the sale of its Beijing Novotel Sanyuan and Ibis Beijing Sanyuan (Beijing Hotels) for a cash consideration of RMB1,156.4m (c.S$235.9m) to be adjusted for amongst others, working capital. The buyers will also pay a look fee of RMB23.6m (c.S$4.8m).
  • The net proceeds after deducting tax expenses, fees and other expenses is estimated to be RMB1,072.2m (c.S$218.7m), resulting in a net gain of c.S$112.7m.
  • The agreed consideration is at a 101.5% premium to the Beijing Hotels’ latest valuation of RMB574m as at 31 October 2017 and 178% higher than the initial purchase price of c.RMB416m at ASCHT’s listing in 2012.
  • The Beijing Hotels were sold at an exit net property income (NPI) yield of c.3.3%.
  • The sale is expected to be completed by end May 2018 with the proceeds expected to be initially used to repay debt ahead of any future acquisition. 
  • We understand ASCHT may also distribute some of the gains in the interim to offset the loss of income post the sale of the two hotels. Assuming 100% of the proceeds are used to repay debt, ASCHT’s gearing should drop to c.21.1% from 32.6% as at end September 2017.
  • ASCHT notes that this disposal is consistent with its active asset management strategy under which it periodically evaluates its portfolio and where appropriate frees up or recycles capital for more productive uses.

Our thoughts

  • While we are surprised by ASCHT’s plans to dispose the Beijing Hotels, we understand ASCHT has periodically been approached by potential buyers for its properties.
  • Overall, we expect the market to react positively to this announcement given proforma NAV per unit is expected to rise to S$1.02 from S$0.89 as at end September 2017.
  • Furthermore, we believe this transaction will give confidence over ASCHT’s property valuations especially given the market’s scepticism over ASCHT’s book value resulting in ASCHT historically trading below 1x P/Bk.
  • For now, we maintain our BUY call and Target Price of S$0.91 pending the release of ASCHT’s 3Q18 results on 1 February 2018.

Melvin SONG CFA DBS Vickers | Derek TAN DBS Vickers | http://www.dbsvickers.com/ 2018-01-30
DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 1.250 Same 1.250