SINGAPORE (Apr 17): Since March 23, when the FTSE ST REIT Index made its low, ARA US Hospitality Trust has recovered the most within its stressed hospitality sector. However, since the start of the year, the US trust is the worst performer (see Charts 1 and 2). There can be no sugar coating how challenging its prospects appear to be. Even before the Covid-19 pandemic hit, ARA US Hospitality Trust missed its FY2019 forecast by 7.7%, and announced distribution per stapled security (DPS) of 4.21 US cents (5.99 cents). In 4QFY2020, ARA US Hospitality Trust missed its DPS by 12.9%, reporting 1.08 US cents. ARA US Hospitality Trust’s manager says the miss was due to a combination of supply in its markets, Hurricane Dorian and the Gen-eral Motors Strike.
In its outlook, the manager warns, “As government authorities and corporations adopt containment mitigants to restrict travel and social contact in the US, hotels around the country are grappling with an extraordinary contraction in demand and occupancies. Similarly, our port-folio is facing increasing booking cancellations and declining new reservations.”
ARA US Hospitality Trust’s manager says it has initiated a series of proactive cost mitigation and capital preservation measures which include cost controls through reduction in labour hours and staffing, closure of certain facilities and amenities and review of all operating contracts. “We have also taken further steps to proactively protect and conserve cash flow by postponing non-essential capital expenditures and actively managing working capital,” it adds. The one good thing about ARA US Hospitality Trust is that it paid out its DPS on Feb 19 this year.
All the hospitality trusts are likely to be affected by the pandemic. CDL Hospitality Trusts (CDLHT) announced on April 9 that its perfor-mance in the first and second quarters of this year will be adversely affected. CDLHT has also said it plans to post-pone the closure of No-votel Clarke Quay from this month to July due to demand for rooms for isolation purposes.
On April 14, Fitch Ratings pointed out that Ascott Residence Trust’s (ART) operating cash flows are less vulnerable to disruptions arising from the coronavirus pandemic than peers be-cause it has longer-term revenue visibility and a strong sponsor. More than 50% of ART’s gross profit is from long-term master leases that have fixed rentals and very limited direct costs, from management contracts with minimum guaranteed income, or from tenants staying for 12 months or more. In addition, the majority of the trust’s master leases are contracted with its sponsor, The Ascott Limited.
Even then, ART’s revenue per available room (RevPAR) in 2QFY2020 is likely to fall to 20% of ART’s RevPAR in 2QFY2019 for proper-ties that do not benefit from long leases. Fitch only expects a recovery in the hospitality sector in 2H2021.
