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Wednesday, August 26, 2020

ARA US Hospitality Trust Analysis @ 26 August 2020

Basic Profile & Key Statistics

ARA US Hospitality Trust (ARAHT) is a stapled group that comprises of ARA US Hospitality Property Trust (ARA H-REIT) and ARA US Hospitality Management Trust (ARA H-BT). ARAHT invests in 41 hotels across 22 states in U.S. It is trading in USD.

Lease Profile

All properties are master leased to ARA USH Chicago Tenant, LLC, a wholly-owned subsidiary of ARA H-BT. 1H 2020 REVPAU for that master lease is US$ 48 (approx. S$ 66.90). WALE is slightly long t 4.5 years where 100% of the lease expiry falls in the year 2024. Weighted average land lease expiry is long at 95.6 years as the majority of the properties are freehold.

Debt Profile

Gearing ratio is high at 42.5%. Cost of debt is high at 3.5% with unsecured debt low at 26.8%. Fixed-rate debt % is moderate at 83%. Interest cover ratio is low at 1.5 times. WADE is long at 3.6 years. The highest debt maturity is estimated at 71% which falls in the year 2024, as there is no information for the new debt which used for recent acquisition in January.

Diversification Profile

Top geographical and top property contributions are low at 18.9% and 4.5% respectively. As ARAHT only lease to 1 tenant, its top tenant and top 10 tenans contributions are the same at 100%.

Key Financial Metrics

Property yield is low at 2.9%. ARAHT pegged its management base fee to distributable income, since there is no distributable income (due to loss) for 1H 2020, so there is no management fee payable. As such, its management fees remain competitive in which unitholders receive US$ 9.50 for every dollar paid. Distribution on capital is slightly low at 2.9%. Distribution margin is low at 12.9%.

Related Parties Shareholding

As compared to SREITs median, sponsor and manager holding lesser stake and directors of manager holding is moderate.


Note that the actual 2Q 2019 DPU is 1.36 for the period between 9 May 2019 to 30 June 2019, for a fair comparison, I have annualized it to 3 months period to around 2.335 cents. As ARAHT has only listed shortly and then COVID strike, so it is less meaningful to look at the trend now.

Relative Valuation

i) Average Dividend Yield  - Average yield at 5.96%, apply the past 4 quarters DPU of 2.85 cents will get US$ 0.48.

ii) Average Price/NAV - Average value is at 0.88, apply the latest NAV of S$ 0.769 will get US$ 0.675.

Author's Opinion

FavorableLess Favorable
Weighted Average Land Lease ExpiryConcentrated Lease Expiry
Top Geographical WeightageCost of Debt
Top Property WeightageUnsecured Debt
Management FeeInterest Cover Ratio
 Concentrated Debt Maturity
 Top Tenant & Top 10 Tenants Weightage
 Distribution Margin

ARAHT is making a loss in EBITDA (Earnings before interest, tax, depreciation and amortization) for 1H 2020. There is still a deficit of 8.96 mils in 1H distributable income which would need to be covered in 2H before distribution. Generally, the hospitality master lease comes with high fixed rent, but it is unique in ARAHT case. From my understanding, since all properties are master leased to a subsidiary of ARA H-BT, then any drop in hotel revenue will affect the stapled group as a whole, which is no different than management contract in stapled group point of view. From the latest presentation, all temporarily closed hotels have reopened in July, which is a positive thing for ARAHT.

The above analysis information is extracted from SREITs Dashboard, you are welcome to use the information there for your analysis. You could also refer SREITs Data for an overview of Singapore REITs. If you like my sharing, please join the Facebook group - REIT Investing Community where you could read, share, and discuss REITs related topics.

*Disclaimer: Materials in this blog are based on my research and opinion which I don't guarantee the accuracy, completeness, and reliability. It should not be taken as financial advice or statement of fact. I shall not be held liable for errors, omissions as well as loss or damage as a result of the use of the material in this blog. Under no circumstances does the information presented on this blog represent a buy, sell, or hold recommendation on any security, please always do your own due diligence before any decision is made.

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