SINGAPORE (Apr 30): DBS Group Research remains positive on Ascendas Hospitality Trust (A-HTRUST), following the REIT’s maiden entry into South Korea.
A-HTRUST last Friday announced it is acquiring a 98.7% stake in KY-Heritage Hotel Dongdaemun for KRW72.1 billion ($89 million).
The 215-room four-star hotel sits on a plot of freehold land in Dongdaemun, a major shopping and tourist destination in Seoul.
See: Ascendas Hospitality Trust acquires 98.7% stake in Seoul hotel for $89 mil
“We are generally positive on the ability of [A-HTRUST] to recycle nearly half of the $235.9 million proceeds from the sale of Beijing Hotels (exit yield of 3.3%) into a higher yielding property with further upside from rebranding the property,” says lead analyst Mervin Song in a Monday report.
A-HTRUST will be purchasing the South Korean property at a 3.2% discount to the latest valuation and on a pro forma net property income (NPI) yield of 4.1%.
The REIT announced in January that it is selling its two China hotel properties, Beijing Novotel Sanyuan and Ibis Beijing Sanyuan, for a total of RMB 1.16 billion ($235.9 million) in cash.
See: Ascendas Hospitality Trust sells its only two China properties for $235.9 mil
“Furthermore, the acquisition also enables ASCHT to increase the exposure to freehold properties, as the Beijing Hotels were leasehold properties,” Song says.
While DBS is positive on the acquisition, it is keeping its “buy” call on A-HTRUST with an unchanged target price of 97 cents.
This is “pending completion of the acquisition and further details on the exact details of master lease agreement,” Song explains.
As at 1.10pm, units of A-HTRUST are trading 2 cents up, or 2.5% higher, at 81.5 cents. This implies an estimated price-to-earnings ratio of 26.9 times and a distribution yield of 7.0% for FY18.
