Ascendas Hospitality Trust (ASCHT) - DBS Research 2018-04-30: Anasayo (hello) Seoul

Ascendas Hospitality Trust (ASCHT) - DBS Vickers 2018-04-30: Anasayo (hello) Seoul ASCENDAS HOSPITALITY TRUST Q1P.SI

Ascendas Hospitality Trust (ASCHT) - Anasayo (hello) Seoul

  • Redeploys proceeds from sale of Beijing hotels (exit yield of 3.3%) into Seoul Hotel on NPI yield of 4.1%.
  • Higher property yields upon rebranding of the hotel and appointment of new operators.
  • Acquisition strengthens portfolio with increased exposure to freehold properties.
  • Maintain BUY, Target Price of S$0.97.

What’s New

Expands into South Korea

  • Ascendas Hospitality Trust (ASCHT) announced its maiden entry into South Korea with the signing of a sale and purchase agreement to acquire a 98.7% interest in KY-Heritage Hotel Dongdaemun for KRW72.1bn (S$89.0m). Total consideration including acquisition fees and other professional and transaction fees stands at KRW81.6bn (S$100.7m)
  • The property will be purchased at a 3.2% discount to the latest valuation of the Hotel and on a proforma NPI yield of 4.1%.
  • The acquisition is expected to be completed in June 2018, subject to satisfaction of certain conditions and regulatory approval from the Korean authorities.
  • After acquisition, the Hotel will be managed by an established regional hotel management company with the potential to add further value by rebranding and repositioning the property.
  • The purchase consideration is expected to be fully funded with debt.
  • We understand, ASCHT will be taking a 98.7% stake in the property as the structure used by ASCHT to minimise tax leakage requires at least two shareholders. The remaining 1.3% will be held by ASCHT’s sponsor, Ascendas-Singbridge.

Overview of KY-Heritage Hotel

  • KY-Heritage Hotel is a 215 room, 4-star hotel. located in Dongdaemun, a major shopping and tourist destination in Seoul. The property is also a few minutes’ walk away from the Dongdaemun History & Culture Park Subway Station which provides excellent connectivity to other parts of the city.
  • The property is situated on freehold land and the 20- storey hotel was only completed in 2015. The hotel’s facilities include a restaurant, a café, two conference rooms and a gym.
  • Starting from 1 July 2018, ASCHT will enter into a master lease agreement with an established hotel operator, with rent comprising fixed rent and variable component. We understand the variable component is based on the percentage of revenue.
  • We understand revenue per available (RevPAR) for the property is close to the property’s competitive set of hotels at between KRW60,000-70,000.

Investment rationale

  • A key rationale for ASCHT’s expansion into Korea is the fact that Seoul is a gateway city in Asia, among the top 10 financial centres in the Asia Pacific, a top MICE destination, and a popular tourist destination.
  • Furthermore, based on CBRE’s assessment, the hotel market in the hotel’s vicinity is poised to show an improvement, with revenue per available room (RevPAR) growing at CAGR of 4.9% from 2019 to 2028 due to the easing of political tensions between China and Korea, slower room supply growth and campaigns to drive domestic travelling and attract visitors from other source markets. The Seoul hotel market has been on a downturn over the past few years, due to an increase in supply as well as the impact from lower number of Chinese tourists arising from political tensions between China and Korea.
  • The acquisition is also expected to be DPU accretive, contributing 0.01 Scts or 0.2% with higher potential accretion assuming the hotel is rebranded and repositioned.

Our thoughts

  • We are generally positive on the ability of ASCHT to recycle nearly half of the S$235.9m proceeds from the sale of Beijing Hotels (exit yield of 3.3%) into a higher yielding property with further upside from rebranding the property.
  • Furthermore, the acquisition also enables ASCHT to increase the exposure to freehold properties, as the Beijing Hotels were leasehold properties.
  • For now, we maintain our BUY call and Target Price of S$0.97, pending completion of the acquisition and further details on the exact details of master lease agreement.

Mervin SONG CFA DBS Vickers | Derek TAN DBS Vickers | 2018-04-30
SGX Stock Analyst Report BUY Maintain BUY 0.970 Same 0.970