More hotel trusts coming up

Orchard Parade Hotel, Albert Court Village Hotel (above) and Central Square Village Residences will be injected into the proposed Far East Hospitality Trust. -- ST FILE PHOTOS

TWO big corporate moves this week have thrust hospitality trusts back into the spotlight.

The first came when business park developer Ascendas lodged a prospectus for the initial public offering (IPO) of Ascendas Hospitality Trust, which could raise gross proceeds of up to $823 million.

In the second development, shareholders of mainboard-listed Orchard Parade Holdings have voted to inject Orchard Parade Hotel, Albert Court Village Hotel and Central Square Village Residences into the proposed Far East Hospitality Trust, which is now expected to prepare for an IPO.

Apparently, companies are still confident about going for a listing even though, in April, M&L Hospitality Trusts unexpectedly deferred its planned IPO.

Newcomers to the bourse will join CDL Hospitality Trusts, which holds hotels in Singapore, Australia and New Zealand.

There are several factors attracting investors to such plays. For one thing, tourism is seen as an expanding sector, and one of the simplest ways to gain exposure to it is to buy a stake in hotel rooms via hospitality trusts.

A report last month from SGX My Gateway - the exchange operator's portal for investor education - highlighted official forecasts that said Singapore could enjoy $23 billion to $24 billion in tourism receipts and 13.5 million to 14.5 million visitor arrivals this year. Tourism receipts hit $22.3billion last year.

In addition, the outlook is strong for vehicles such as Ascendas Hospitality Trust, which will have hotels in the region but not specifically Singapore.

The Asia-Pacific has been the world's strongest growth region in terms of international arrivals over the past two years, according to World Tourism Organisation, a United Nations agency.

Tourist arrivals to the region grew 6 per cent last year; in contrast, growth averaged 4 per cent globally.

Hospitality trusts are structured as yield vehicles, which have seen demand rise as investors struggle to protect their savings from the effects of inflation. Bank deposit rates are mostly below 0.5 per cent while inflation is running at about 5 per cent.

The distribution yield for the upcoming Ascendas Hospitality Trust is projected at 7.4 per cent to 7.8 per cent for next year, depending on the final issue price.

CDL Hospitality Trusts has paid out 11.05 cents over the past 12 months, giving it a yield of 5.7 per cent at yesterday's closing price of $1.925.

Still, investors should not think that all is rosy. They must be aware of the risks as well.

Phillip Securities Research analyst Travis Seah noted that tourists stay in Singapore hotel rooms for only about three to four days each. By comparison, retail and industrial real estate investment trusts (Reits) have their tenants on two- to three-year contracts.

In other words, the earnings of hospitality trusts could fluctuate more in the short term.

Tourism is also a cyclical sector, highly vulnerable to the health of the world economy.

Other factors such as exchange rate movements, the outbreak of pandemic diseases and natural disasters could affect arrival numbers as well, noted Mr Seah.

Remisier Desmond Leong said Singapore might need a 'new driving force' following the Integrated Resorts and Formula 1 to boost tourism further.

CDL Hospitality Trusts is listed as a 'stapled security' - each unit is made up of one unit of a Reit and one unit of a business trust.

Ascendas Hospitality Trust and Far East Hospitality Trust will also list as stapled securities.

A business trust has fewer restrictions on its activities than a Reit does, but it might also enjoy fewer tax benefits.

One benefit of stapled securities is that a business trust gives its managers greater capacity to undertake development projects, noted Mr Seah. A pure Reit structure has more limits in this regard.

Observers add that a business trust could also serve as a back- up in case the hotel operator quits for any reason. The trust could then step in to take over the hotel management.