Income Portfolio boost by Merger & Buyout

My Income Portfolio has grown really well this year, noticeable is VICOM, Perfect Shape, Valuetronics. The biggest contributor is however Ascendas Hospitality Trust which was 25% of the portfolio which I divested in august. Hence taken its place is Accordia Golf Trust (AGT) at 27% of current portfolio. It was recently announced to have a buyer of all its golf courses. Although it is a good news, if AGT was to delist, I would have to look for new counter to buy with higher risk as well. I hope the deal offer at a great price or failed to be sold isn't that bad too.

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Ascendas Hospitality Trust AGM 2019

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.

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Analysing the lost of Ascendas Hospitality Trust

This is the first equity I had blogged about and also my gem, being more than 24% of my Mum's income portfolio. In my eyes, Ascendas Hospitality Trust (AHT) is the only Hospitality S-Reit that is worth buying as others are plague with dropping DPU for years and yearly rights issue (The acquirer).

The market has adjust according to the offer. As AHT price gap up to $1.04 - $1.05, Ascott Reit (ART) price plunge to $1.27 -$1.28. From the table below, you can see that at $1.28, the value  from the scheme of arrangement is about the same that of AHT if I hold to the completion of the merger.

Table 1.AHT Dividend base on 2HFY2018

Yield
I do not own ART because I think it is not cheap, pro forma yield is 5.73% and the DPU has been dropping. I wonder if AHT properties can save their DPU. My aim is to acquire good Reit at 7% and premium Reit at near 6% yield. If you remember my first post on AHT, all other Hospitality S-Reit performed badly. So there is no reason for me to acquire ART at current price of $1.28 if I am not even acquiring off the market.

Base on current price of AHT and ART, the yield is 5.8% and 5.73% respectively. A slight drop in yield. In terms of yield, it may be similar, however in term of value I am not getting that. Simply put, it is as I have to force sell my AHT (which better than ART)  and  BUY ART at a high price.

Conclusion

Including fees, if I want to sell my shares now, from table 1, I would have a little more than $1300 less profits (if AHT DPU increase again and forgo the coming dividend)) or I can wait until I get the dividend. Going through the scheme also come with odd lots which some people dislike, some brokerage may not offer a easy way to offload them.

I will hold on to them for now till I have something to buy. It won't be easy getting a substitute currently. 

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REITS, Holding It Versus Buy Low Sell High

I always wonder if a holding a REIT is better or selling when the profit is  hit 3 years of dividend or more, that is profit is 3x the yield. The same question also pop up in InvestingNote, especially when prices has been going up all time high with current yield dropping below 5%. In this post, I will try to plot out and compare the difference in gain for Holding vs. Buy low sell high (BLSH).

Fun Fact
Just before the GFC, CMT was trading at $3.5 with a yield of about 3.8%, CMT current yield is 4.8%, high but not crazy high yet. During GFC, CMT issue 9 for 10 rights, which mean when adjusted for the rights, CMT is now worth $4.52 pre-crsis.

Mapletree North Asia Commercial Trust  
Buy Criteria: 7% Yield
Sell Criteria: 3 years worth of dividend from Gain

Ascendas Hospitality Trust  
Buy Criteria: 7% Yield
Sell Criteria: 3 years worth of dividend from Gain

CapitaR China Trust
Buy Criteria: 7% Yield
Sell Criteria: 3 years worth of dividend from Gain

Capitamall Trust
Buy Criteria:Close to 6% Yield
Sell Criteria: 3 years worth of dividend from Gain

Mapletree Commercial Trust  
Buy Criteria: 6.5% Yield
Sell Criteria: 3 years worth of dividend from Gain

Conclusion
No one Reit is the same, investor's reaction to the price differ as well. Comparison show that one is better off holding AHT and CMT as the difference is minimal and CMT is definately a HOLD rather and BLSH. The comparison is base on hindsight so there are rooms for error in executing as well as broker's fees. 

For MNACT, there is a substantial gap in gains. 90% vs 112%, BLSH is the winner. 

MCT show a unique situation. The price never come down low enough to reach 6% yield  and rebound at 5.9% after selling off in 2016. LOL, if one stick to the TP, he would have missed the boat since 2016. However, he will be rewarded handsomely if he did catch in at the low. gain will turn out to be 120% vs 48.8% total gain. It's tought to be right all the time.

So in conclusion, It is better off to hold on to your REIT unless there is a better investment (Just sold FLT for First Riet) or when the price is so high that the yield has reached GFC level of below 4% yield.Human nature, even with the comparison proof that holding is the better strategy , I am still tempted to sell! the immediate gratification! I need to find a way stop my hand from the sell button!

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Ascendas Hospitality Trust AGM 2018

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.
• DPU increase 3.2% (from that one time look fee)
• 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..

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High Yield Stocks on My Radar Now

Ascendas Hospitality Trust

My favorite pick. Read all about it. Forward yield of 7.5% at current price of S$0.77. Have no reason for it price to drop.

Frasers Commercial Trust

HP vacated part of its office at Alexandra TechnoPark (ATP) in FYQ4 2017 and FYQ1 2018. DPU maintained at 2.40 cents since. HP to fully vacated ATP by Sept 2018. Assuming with AEI and rental space back-fill improves, 2.40 cents should maintain. which give a 7.05% yield at a price of  $1.36. with up to 10% MOS. TP is S$1.23 to S$1.29.

StarhillGbl Reit

On my last take on StarhillGbl Reit, yield is at 7.27% with a price of S$0.65, estimate DPU  of 4.73 cents adjusted for possible DPU reduction and effects from AEI. If I demand a 7% yield with up to 10% MOS. TP is S$0.61 - S$0.675.

Sasseur Reit

Go into outlet retail growth in china as middle class grows. China being so big should have no issue to grow as big as US/EU. Estimate 6 cents DPU from FY2019, current yield 8.1% at a price of S$0.74. Current trend is bearish, price been tanking since IPO. Another 10% MOS will be S$0.675

Capitaland Retail China Trust

Singapore Retail Segment is facing headwinds from online shop, most mall now have cater to more F&B outlets. However China's retail segment has a better prospect as middle class grows and spend more. From the past 1st Quarter results, the recent placement (an increase of 10% shares) has diluted the DPU. the current DPU is supported by the capital distribution from a portion of the gain from the disposal of Anzhen.  Probably why the price tanked since FYQ4 results was released

Forward looking: The Joint venture acquisition of Rock Square reported renewal revision of more than 20%. More than 50% of expiring leases are expect to renew from 2018 to 2020

Current Yield of 6.8% with the price of S$1.48. Demanding 7% yield with up to 10% MOS, TP will be S$1.3 - S$1.44

M1

M1 drops further. And while everyone joked about it falling to S$1.68 in forum and social apps, most are just joking but the price high a new low of  S$1.51, giving a yield of 7.55%. Price had since rebounded. But I doubt it is the end of it as TPG launch is approaching. dividend of 15.3 cents in 2015 has drop to the current 11.4 cents, that is a 25.5% over 2 years.

At its peak on 22/2/2015 of S$3.96, dividend was 18.9, 4.7% yield. The price was pushed up by the increase in dividend, obviously M1 will not be able to payout that amount anymore. Price of course has come down and are still being corrected. We would need to see a stabilize dividend and that is not gonna happened until we see how TPG will impact its profits.

Demanding a 7% yield, TP will be at S$1.62. assuming profit to be further hit 25% for the next 2 years. with a MOS of 25% to 30%. TP S$1.14 to S$1.22. Historically, M1 yield range from 4.3% to 7.1% (AR 2017). So it won't be unreasonable for M1 to have a price giving a yield of 4 to 5%.

UMS Holdings

Their Strong FCF still stands, promising the same amount of dividend will be of no issue, for the last 8 years. The world is going into the era of IoT. As these item become part and parcel of our life, it would not go away. Demand will soar and more tech products will be produced. Just like the internet did. Main customer Applied materials has been growing in double digit, this will create more demand from them.

With a dividend of 6 cents, give a yield of 7.19% at a price of $0.835. This is quite a nice price to get some.

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Ascendas Hospitality Trust 2nd M&A : Osaka WBF Hotels

Ascendas Hospitality Trust (AHT) continues its buying spree. This should satisfied AHT appetite for a while.

At 31.8% gearing, AHT has room for another acquisition. Total proceed from China properties are  $218.7 Million SGD.  Total M&A into Korean and Osaka amounts to $226.8 Million SGD. Hence the slight increase in gearing. NAV is expect to be at 1.02 when the purchase is complete by Jan 2019. And don't forget about Shama Luxe Aurora Melbourne Central to be completed in 2H 2019. Further growth awaits.

Price to Pro Forma NAV is 0.755. It really cheap now, last time at this valuation is in 2016 period. 

Pro Froma DPU to be at 6.11. As stated on my last post, after removing one off item (looking fee), DPU for FY 2017/18 is 5.68 cents. so the adjusted Pro Froma DPU should be 5.76 cents. This is higher than FY 2016/17 of 5.68. This give a yield of  7.5% juicy yield. Click here for comparison table with other hospitality Trust.

Over all the management did a good job executing asset recycling, total Properties increase from 11 to 13 with 12 being freehold and the 3 Osaka WBF is just a few months old. As Shama Luxe Aurora Melbourne Central come in late 2019 , AHT ability to have maybe one more acquisition, completion of renovation at Sunroute Ariake, growing tourism will grow its DPU into 2019 and beyond. Forgot to add, the major reduce of airbnb houses will help hotels in japan too.

Vested avg price 0.853

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Ascendas Hospitality Trust: Break Down of Q4 Results

Ascendas Hospitality Trust (AHT) announced a dividend of 3.13 cents for FY 2H 2017/2018. Q4 contribution is 1.72 due to one time look fee of $4.1 Million. (Anyone can explain what is look fee?)

Removing the one off item, adjusted NPI is estimated to be S$15.4 Million. That gives about 1.37 cents, flat Y-on-Y, which brings the full year DPU from 5.86 to 5.51 cents compare to 5.68 cents last year. The results is affected by Forex, competition as well as on going renovation at Sunroute Ariake.

Looking forward,gearing will drop to 26.3% (maybe higher with recent M&A) at an assumption of paying off S$160 million in debt.  Proceeds from  divestment should worth S$240 million, S$218.7 after fees. This give AHT headroom to take on more debt for future acquisitions. This leave us with S$58.7 million for a possible distribution of approximately special dividend of 0.05. The new Korea hotel should able to cover the short fall in DPU from the china properties.

Book value increase from 86 to 92 cents. Proceed from the sale of properties should increase to 96 cents, adjusted from AHT's pro forma estimates. 

Expect more M&A from to grow AUM and DPU. Shama Luxe Aurora Melbourne Central to be ready in 2019.

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Ascendas Hospitaly Trust: The Buying Spree Has Began

View From Y-Heritage Hotel Dongdaemun

I have been eagerly waiting for Ascendas Hospitaly Trust (AHT) to make their acquisition since their divestment of their china properties. Today, AHT announced that they are buying a hotel in Korea.

AHT is buying Y-Heritage Hotel Dongdaemun at a discount of 3.2% to the hotel's valuation, paying S$89 Million fully funded by debt. The selling of the 2 china properties translate to a net property income (NPI) yield of 3.3% while this acquisition provide a net property income yield of 4.1%

AHT highlighted that the acquisition is expected to be accretive. Assuming AHT had owned the hotel since April 1, 2016, on a pro forma basis, the distribution per stapled security for FY2016/17 would have edged up from 5.68 Singapore cents to 5.69 cents

DPU contributioned by 2 china properties : 1.77 cents provide a value of S$218.7 Million after expenses upon divestment.

DPU to be contributioned by Y-Heritage Hotel Dongdaemun : 1 cents at a cost of $89 Million by debt.

Although that the acquisition only increase a miserable 1 cents. We can see that the cost for that 1 cent DPU is lower. Base on AHT total property value as at mar 2016 is S$1624 Million, a S$89 Million debt is equal to 5.48% in gearing. Hence gearing will be increased from 33.2% to 38.7%.

The sale of China properties are estimated to be completed in 1H 2018/2019. Looking forward to more acquisitions ahead.

Y-Heritage Hotel Dongdaemun

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Ascendas Hospitality Trust

Ascendas Hospitality Trust caught my eyes for a long time as I like to own hotels in Japan to tap on Japan’s growing tourism. Especially so when they recently sold their 2 hotels in china.

Ascendas Hospitality Trust (AHT) is a hospitality Reit comprises of 11 9+1 hotels in Asia Pacific in Singapore, Australia, China and Japan. On November 2017, AHT announced an expansion of markets beyond Asia Pacific for potential investment. A quick look at the important metrics of AHT.

Ticker Code: Q1P

Sponsor: Ascendas-Singbridge Group. Jointly owned by Temasek and JTC.

NAV per share: 0.86 as at Dec 31 2017

Estimated NAV per share after china Divestment : 0.96 (Adjusted)

Gearing: 33.2%

Estimated gearing after repayment estimate to be: 23.6%

Price: 0.845 (09/03/2018)

PB after Divestment: 0.88

 Properties

Hotel Sunroute Osaka Namba

Australia	Japan	Singapore	China (DIVESTED)
Pullman Sydney Hyde Park	Hotel Sunroute Ariake and Oakwood Apartments Ariake Tokyo	Park Hotel Clarke Quay	Novotel Beijing Sanyuan
Novotel Sydney Central	Hotel Sunroute Osaka Namba		Ibis Beijing Sanyuan
Novotel Sydney Parramatta
Courtyard by Marriott Sydney-North Ryde
Pullman and Mercure Melbourne Albert Park
Pullman and Mercure Brisbane King George Square
Shama Luxe Aurora Melbourne Central (2H 2019)

                                                                                   

AHT announced on Jan 29 2018, that they will be selling their 2 hotels in china at 178% profit! 1156 million RMB is about S$240 million. Proceeds will used to repay debts, distribution and acquisitions.

Divestment of China Properties

                     

Performance

NAV has been growing with a CAGR of 9%. Net property income and DPS has been growing steadily. Future acquisition with cash from the divestment and a new service apartment to be completed in 2H2019 provide a good growth story.

If you take a look at other hospitality Reits such as FHT, CDLHT, FEHT and OUEHT, their DPU is dropping for years and are trading at near or above NAV. Do note that OUEHT has been receiving income support till 2017, not sure about the others. AHT is the only one with growing DPU.

Price Base on 10/3/2018

	AHT	CDLHT	FHT	FEHT	OUEHT
2013	7.53%	6.57%		8.83%
2014	6.3%	6.43%		7.38%	9.14%
2015	6.17%	6.21%	12.47%	6.59%	7.71%
2016	6.43%	5.85%	6.95%	6.13%	5.76%
2017	6.79%	5.74%	6.5%	5.66%	6.08%

DEBT                                        

 

Most debt is on fixed interest rate. Gearing will drop to 26.3% at an assumption of paying off S$160 million in debt.  Proceeds from  divestment should worth S$235.9 million, S$218.7 after fees. This give AHT headroom to take on more debt for future acquisitions. This leave us with S$58.7 million for a possible distribution of approximately special dividend of 0.05. However, most likely AHT will top up the shortfall of DPU from the absent of the China Properties.

Conclusion

At price to book of 0.88 after divestment on 31 March 2018, this Reit is fairly cheap in comparison of its performance against other hospitality Reits. Growth story of future acquisition from divestment proceed and its 9^th property to be complete in 2H2019. Possible estimated special dividend of 0.05.

Vested at 0.869.

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