• Reits look to diversity

Ascott Residence Trust said that it expected diversity to protect it from rising competition and economic uncertainty.
At Frasers Hospitality Trust, the company said that it was focusing on optimising its portfolio, “which may involve some portfolio rebalancing”.
At Ascott Residence Trust fourth-quarter distribution per unit increased by 5% year-on-year to 2.15 cents, with revpar also growing by 5%.
Bob Tan, Ascott Residence Trust Management’s chairman, said: “Ascott Reit achieved record high Unitholders’ distribution for the third consecutive year. Ascott Reit’s ability to deliver stable returns is a result of our efforts in building a geographically diversified portfolio of quality properties. We continued to strengthen Ascott Reit’s position as the largest hospitality Reit in Singapore by acquiring a prime site to build Lyf one-north Singapore, our first co-living property.”
As part of group’s portfolio diversity strategy, it sold two serviced residences in Shanghai and Xi’an in early 2018.
The results came shortly after The Ascott Limited secured contracts for 26 properties with over 4,600 units across 18 cities and 11 countries, taking its portfolio to over 100,000 units. The group entered the Netherlands market with the signing of Citadines Sloterdijk Station Amsterdam, a franchised property in Amsterdam. It has also expanded its presence in China, India, Indonesia, Philippines, Singapore, Thailand, Turkey, Vietnam, UAE and the UK. Ascott’s global footprint now extends to 172 cities across 33 countries.
Of the 26 newly-secured properties, four Citadines properties were signed under Ascott’s strategic alliance with Huazhu Hotels Group and Huazhu’s subsidiary CJIA Apartments Group.
In May last year the company signed an agreement with Huazhu, targeting 16,000 units under the Citadines brand by 2025. Kevin Goh, Ascott’s CEO, said that the deal marked: “Ascott’s most significant and game-changing move in the asset-light manachise business to date. China Lodging is one of China’s biggest hospitality players with significant local capabilities. CJIA has scaled up rapidly in the apartment rental space with more than 90% of its revenue from long-term rentals, which complements Ascott’s strong position in the long-stay business. Ascott will be able to tap on China Lodging and CJIA’s vast expertise in operating properties through manachise, and their over 100 million-member database of domestic corporate and leisure travellers.
“China remains our top source market globally with the Chinese constituting almost a quarter of our customers and continues to be the fastest growing segment. With the joint venture’s target to sign 16,000 units under Citadines by 2025, this will more than triple our current Citadines portfolio in China.”
Looking ahead, Ascott Residences Trust said: “The International Monetary Fund has revised its global economic growth forecast from 3.7% to 3.5% for 2019. The modest growth stems from economic uncertainties arising from trade tensions, uncertainties about Brexit and tighter financial markets. As for the hospitality industry, the number of international travellers is expected to increase by 6% in 2019. However, competition arising from new supply and higher operating costs may remain a challenge. With a well-diversified portfolio spanning over 14 countries and no earnings concentration risk in any single market, Ascott Reit remains resilient in providing stable returns.”
At Frasers Hospitality, the group saw fourth-quarter gross revenue fall by 2% to SD40.6m. Eu Chin Fen, CEO of the managers, said: “We will continue to proactively pursue opportunities to optimise our portfolio, which may include portfolio rebalancing. We will also continue to work closely with our operators to drive revenue growth.”
The declines were mainly due to weaker performance of the Malaysia and Japan portfolios as both The Westin Kuala Lumpur and ANA Crowne Plaza Kobe reported lower room and food and beverage revenue for the quarter. In contrast, the Australia and UK portfolios performed better year-on-year as revpar of these improved on the back of higher average daily rate and occupancy. For the group as a whole, gross revenue fell by 2% to SD40.6m.
Commenting on the likely future performance in the UK. the company drew attention to the 5% drop in the number of overseas visitors in the first nine months of 2018, with business visits were 4.0%, commenting: “Going forward, caution remains as the impact on business investment from ongoing economic and political uncertainty relating to the outcome of the Brexit negotiations is expected to have a bearing on hotel performance. In addition, the headwinds of rising payroll costs are set to continue in 2019, following the announcement of further increases to the national minimum wage.”

HA Perspective [by Katherine Doggrell]: As delegates at the International Hotel Investment Forum in Berlin heard on repeat, hotels are now a mainstream asset class. This is something the Reits had figured out a fair while back and they have been keen to diversify into the alternatives which have just started to come to the attention of the other hotel investors and the operators as well.
While Merilee Karr, CEO, UnderTheDoormat, told attendees that in five years’ time all the big brands would have a sharing economy flag in their portfolio, the likes of Ascott have been into serviced apartments – the grown-up, business folks’ version of Airbnb – for years and jolly well it seems to be working out for them too.
Ascott and Frasers were now looking to rework their exposure, retaining the diversity of product types, but rejigging globally to adapt to changing fortunes around the world. Frasers has been one of the first groups to come out and say that Brexit wasn’t expected to be one long Buckingham Palace garden party and would have an impact on hotel performance. Giving the Reits’ tendency to lead from the front, expect others to follow. We wonder what will happen to Hotel du Vin and Malmaison if things go south, particularly given the strong appetite which many investors have for the UK, seemingly Brexit nothwithstanding.

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