ARA US Hospitality Trust has resumed paying out dividends to unitholders as it rides on a post-pandemic travel recovery.
For anyone whose livelihood revolves around the tourism industry, the Covid-19 pandemic would have left a significant mark.
This was one of the earlier challenges faced by ARA US Hospitality Trust (ARA H-Trust), which was listed on the SGX in May 2019. The Singapore-based trust currently owns and operates 36 hotels across 19 states in the U.S.
“It was the proverbial punch in the mouth from Mike Tyson—vicious, painful, and disorienting—that set us back from our original plans,” said Mr. Lee Jin Yong, Chief Executive Officer of the trust.
At one point at the depth of the pandemic in March 2020, the trust had to temporarily close 30 of its properties. This led to the trust not having any distributable income for the first half of 2020.
By pursuing other sources of demand and streamlining costs, the trust managed to weather the crisis and resumed paying dividends to unitholders this year.
We analysed ARA H-Trust’s reports and spoke to Mr. Lee to find out what's interesting about the trust.
What you need to know about ARA US Hospitality Trust
#1 – ARA US Hospitality Trust hotels operate in the upscale select service segment
The US hospitality market that ARA H-Trust operates in is multi-faceted.
“US dynamics are different from local dynamics in that unlike Singapore, the US is vast and diverse,” shared Mr. Lee.
The trust’s hotels operate in the select-service segment and are franchised under two of the world’s largest hotel chains, Marriott International and Hyatt Hotels Corp.
By operating in this segment, 90-95% of its revenue typically comes from room revenue. There are only selected facilities that include reduced F&B offerings and smaller meeting rooms.
This allows the hotel to maintain a smaller and more flexible labour force, ensuring optimal operational efficiency at smaller room inventory.
#2 – ARA US Hospitality Trust has seen a strong recovery in its net property income
The trust saw a recovery in revenue per available room (RevPAR) to US$80 in the first half of 2022, a 54% increase compared to the previous year.
This would be just about 10% below where it was in 2019 before the COVID-19 pandemic.
With the higher RevPAR, ARA H-Trust’s revenue grew 53.8% over the same period. Its net property income more than doubled to US$21.1 million.
STR, an insights provider for the global hospitality industry, expects the positive momentum to continue and projects US hotel RevPAR to grow by another 5% in 2023.
This would bring the overall US hotel RevPAR to 14% above the pre-pandemic (2019) levels.
This optimism is shared by the management of ARA H-Trust, who expect the return of business and group demand on top of leisure demand to drive future operating performance and profits.
#3 – ARA H-Trust has improved its financial position
With positive operating cash flow generated in the first half of 2022, ARA H-Trust’s financial position has also improved.
Its interest coverage ratio, which measures how much its operating profit is able to cover its interest expense, increased to 2.8x as at 30 June 2022 compared to 2.0x as at December last year.
Its gearing level fell further to 43.5% as at 30 June 2022 from 44.3% in December 2021, below its gearing limit of 50%.
The gearing level is calculated as total debt outstanding as a percentage of its total assets, and a lower gearing level means that the REIT has a lower amount of debt. The maximum gearing level that REITs in Singapore are allowed to reach is 50%.
More than 80% of the ARA H-Trust’s borrowings are hedged to fixed rates. Also, there are no refinancing requirements for the remainder of FY 2022 and FY 2023.
Mr. Lee shared that the trust has managed to keep a sound financial position through a relentless pursuit of excellence across the team.
“If we achieve excellence in our roles, we improve and optimise the return for our stapled security holders, and create a hotel portfolio that increases in performance and value.”
#4 – ARA US Hospitality Trust has committed to semi-annual distribution of at least 90% of distributable income
ARA H-Trust has committed to paying out semi-annual distributions amounting to at least 90% of distributable income.
It announced a distribution of 1.427 US cents in the first half of 2022. Based on its current price of US0.37 (as of 9 January 2023), this would translate to an annualised 2022 yield of 7.7%.
The trust is a stapled group that provides an efficient investment structure for non-US investors looking to invest in the US hospitality sector.
However, dividends were suspended during the Covid-19 pandemic as it adopted a more prudent approach to its capital management.
With the reinstatement of dividends, the management of ARA H-Trust considers its ability to tide through the crisis as a key achievement in the past year.
“As a testament to the talent, tenacity, and creativity of our team, we managed through the crisis, kept and reopened all of our hotels, met our financial obligations to our lenders, reinstated dividend payments to our stapled security holders at the end of FY 2021 and overall, emerged more resilient, appreciative and wiser,” said Mr. Lee.
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