Nothing new for those who are updated with the results of AHT. 2018 is the transition for AHT to acquire the Japan properties in Osaka and Korea. Some notable tidbits from the presentations by the CEO:
Financial cost effective interest rate drop to 2%
NPI increase 3%
NAV growth 11%
DPU increase 2.9%
14 out of 15 is freehold
Average age of portfolio has drop form 23 to 18.
Gearing 33%, no debt repayment till 2021 except for 2020.
More diversify portfolio/income (1/3 in Australia, Japan, (Korea+Singapore))
Australia continue to have headwind with new supplies but still healthy 85% occupancy with full booking during weekends.
Japan continues to show strong growth (Olympic 2020, 2025 world expo, new Univeral Studio Japan attraction, IR planned for Osaka)
Korean hotels has been doing quite well, MICE activities
Weirdly nothing is mentioned about Shama
Luxe Aurora Melbourne Central that will be finished development soon.
The Merger The merger is say to be good as the new entity under Ascott will be more diversified portfolio, with higher debt headroom for inorganic growth. The enlarge entity will have higher float and may be included in a index fund with attract institution to invest.The thing is Ascott has been issuing rights to enlarge its AUM for the past years and diluted the shareholders and decreasing DPU. With higher debt headroom, I worry. Ascott hold 150 million perpetual securities, which mean it has a higher gearing than reported. Apparently not much people care about the merger, like 50% left before the Q&A started on the merger. Think most assume 99% will vote yes.
Q&A The
Q&A this time is quite poor with silly questions. Thanks the board for their patient
to explain and answer the questions posed to them. I decided not to post about the Q&A this time, as it is too much for inexperience me to write them out. There is too much to and fro discussion this time round and information overload. Some highlights are
If there is a significant change in the NAV on Asccot or AHT side, will there be an adjustment to the Merger offer? Apparently there is some room for adjstment but It doesnt matter to me as NAV will go up or down. How much can 1Q or 2Q affect the NAV? Can the offer units for 1 AHT share to Ascott share be adjusted so that shareholders will not ended up with odd lots? Can consider reducing the cash component so that shareholder can avoid the odd lots to have the share component rounded to 0.8 instead of 0.7942 shares? The board will take consideration of the shareholders and discuss from the advisers if there is anything to do possible better without comprosimisng on the trasnaction.
One thing I can conclude from the AGM is don't ask the barber whether you need a haircut.
Most of the milestones for Ascendas Hospitality Trust(AHT) during the presentation had been addressed in my previous posts.Some notable tidbits from the presentations by the CEO:
Financial cost effective interest rate drop to 2.7%, interesting since interest rate is increasing.
Retained earnings is 7% in FY16/17 vs 5% in FY 15/16
156 Million Debt paid from the divestment of
China Properties at >100% gain which has a short lease while Japan & Seoul properties are freehold.
To diversify portfolio to near 20% geographically
Interested to diversify into Seoul (I think More M&A Still Possible)
Seoul hotel operator to be replace by Sunroute ( The one operating in Japan)
I was wondering how AHT will manage the debt with so many M&A. Since they are buying up Osaka properties in a stagger method, they are able pay up their 156 Million debt expiring this year and pick up more loan when the time to take over the property is near.
AGM Q&A by unitholders and the board:
Q: Whether the newly acquired Osaka hotels were earthquake proof buildings and whether they were insured against earthquakes.
A: I heard the CEO answered 'yes', not sure if it is in regard to the insurance bit. The hotel is earthquake compliance.It is not customary in Japan to buy an earthquake insurance.
Q: Digital DNA/Strategy. Get rid of the CDs, but do something but not emails/downloads.... (My internal OS: "the!?", asking the impossible? or spend more $?)
A: Management states that depend on the hotel operators. As a property manager, the trust leases
out the property for the operator to manage the hotel, is up to the operator to
carry out its functions to what they think is best. They cannot influence them. It will be better for them to leverage on the sponsor's on this rather than find their own digital strategy.
Q: On data protection
A: The trust understands the concerns on personal data protection,
especially the recent strict regulation set by the EU. It will strive to
remind the hotel operator on the seriousness every now and then.
Q: Whether any of the divestment gain from the sale of the China hotels has been disbursed.
A: No. The proceeds will be used to cover the absents of the China properties until the Osaka properties are ready. Q: Given the compressed yields, how will the trust source out good
properties for acquisition and whether they will be funded by rights
issue. (I'm lumping some questions together)
A: It is hard to source for good properties and they are not readily
available. It is because of the rich experience of the board and
management that they were able to gain access to some information that
normal property agent won't be able to get. The divestment of the China
hotels and the subsequent acquisitions are examples of those. The sale
of the China hotels was described as opportunistic and it is unlikely to
happen again.
As to the method of funding future acquisitions, it will be made
known to unitholders if there ever is one that requires an EGM to
approve any rights issuance.
Q: What is the board view of Airbnb? A: Airbnb is here to stay but they are for different segment, leisure. Whereas hotels are targeting the business segments. Hotels have the facilities to hold meetings and conferences. However, countries have show sign of tighten the regulation for Airbnb such as japan. Q: What is the difference between Master Lease(ML) and Management Contract(MC) ? What is the 7% retained earnings used for? A: ML take on all the risk of their operations, AHT just rent to them the properties. While a MC is the opposite of ML, AHT take on the operation risk of the hotels, hence they need retained earnings to manage them. AHT try to balance a 50-50 between ML & MC. ML brings stability as they get fix rent from the ML but MC can have a both upside and downside depending on the Hotel's performance.
Some of the info on the Q&A was provided by @inspirez, user of InvestingNote..
I was 30 mins late for the AGM, held at Hanwell Holdings. Remembered the wrong time. A small AGM, nothing exciting. I think there is less than 30 people attended. I will write about the things I can remember or interesting. I find Mr Loh, the CEO to be very sincere as he answer questions from the shareholders after the AGM. 1. Why dividend is cut? Is there a cash flow problem? The board said that they are embarking on a new investment. Hence they need the cash for it, so they decided to have some reduction. Probably the acquisition of Nantong Plant. 2. What is the reason from the better performance for 2017? This is due to better selling price and new customers but mainly from higher selling price. 3. Will the price of Tat Seng's products fall? Due to volatility of raw material price. and competition in china, the management always try to improve their productivity, enhance efficiency and manage of cost. They will try very hard to get better return for the shareholders for the future. 4. What is the plant utilization rate in China? The Board said this is sensitive information. Told us not to worry, they know they are utilizing properly. The fact that they upgrade their machine show that there would be bigger volume due to higher demand. 5. Is Singapore operation profitable? Singapore operation has improved but the loss is due to corporate cost of the corporate office located in Singapore. 6. Regarding illegal discharge to public sewer. The incident happened in 2016 and earlier. The recent report is dug out by the press, it did not happened this year. New equipment was installed to resolved the issue and has engage Singapore test service pte ltd to inspect/test for the past 2 months and had met the regulation standard. They said they are caught off guard by the change in Singapore environmental regulation. 7. Does the plant in China face the same issue regarding the illegal discharge? No issue in China. China requirement is less stringent than Singapore as Singapore has a much higher standard due to NEWwater. Interesting Facts
Raw material price is highly volatile.
Raw material paper pulp up > 25% since 2016 Sept.
Request a readjustment in price with customer if raw material increase more than 10%.
Not fair game in china where contract might not be honor, if customer reject the increase in price, they can find another company.
Logistic is very important. Require 100 trucks to delivery goods. Thus has to pay the worker well.
Once deliveries are done, the next delivery will be prepared. Logistic will just pick up and go, hence no wait time, increase efficiency.
Cost of workers are keep below 10% and are confident to remain stable.
Cost of workers has increase but volume of sale has mitigated with even higher sales volume.
Plants are run 24hrs, which allow a huge capacity from Tat Seng. Few (20%) of competitor can do so.
There are about 5000 competitors in china.
China has tighten regulation, more inspections. This level the playing field. Companies that ignore the capex to meet the requirement will be force to spend. This also weed out weaker companies.
Has the big capacity to handle eCommerce demand on special days like the 11.11 single day.
Plants that are invested with money from Singapore is consider a Singapore company. Whereas plant invested by money make from Singapore company in china is consider a china company.
Impairment is due to fair value change of raw material
China private investors are GM in company.
China top customer contribute between 5% to 10% of revenue.
R&D is important. If they can reduce amount of raw material used for the same product. This will save on cost.
Food Good thing about a small AGM. No body rush in to eat or da bao. Everything is very causal. Food by Neo garden. Best bee hoon so far I had eaten from a caterer.
