ARA H-Trust buys 3 US hotels for US$84.5m; Q3 DPS of 1.77 US cents misses forecast

ARA US Hospitality Trust (ARA H-Trust) will acquire three Marriott-branded upscale select-service hotels in the United States for US$84.5 million, it said in a Wednesday morning bourse filing.

The acquisition will be funded primarily by debt and internal cash resources.

The hotels are AC by Marriott Raleigh North Hills in North Carolina, and Courtyard San Antonio at The Rim and Residence Inn San Antonio at The Rim in Texas.

The freehold properties benefit from diversified demand from nearby corporations, universities and leisure attractions, the Reit said.

With the acquisition, ARA H-Trust's portfolio will grow to 41 hotels with 5,340 guest rooms in 22 US states.

The accretive acquisition at a net property income yield of 8 per cent is expected to increase ARA H-Trust's pro forma distribution income from its listing date on May 9 this year to Sept 30 by US$1.4 million.

This translates to a rise in distribution per stapled security (DPS) to 3.38 US cents from 3.13 US cents, assuming the acquisition was completed on the listing date.

Lee Jin Yong, chief executive officer of the Reit's managers, said: "This acquisition demonstrates our ability to execute third-party transactions at an attractive yield in the world's largest lodging market. We will continue to explore acquisition opportunities to further diversify our portfolio by location and by brand, and most importantly to enhance stapled securityholders' returns."

ARA H-Trust On Wednesday separately reported DPS of 1.77 US cents for its third quarter, 11.5 per cent lower than the 2.01 US cents figure forecasted in its IPO (initial public offering) prospectus.

This comes after overall supply growth outpaced demand growth in the upscale select-service segment for the first three quarters of fiscal 2019, it said.

Distributable income for the third quarter ended Sept 30 was 11.5 per cent lower at US$10.1 million versus a forecasted figure of US$11.4 million.

Net property income, which was forecast at US$17.3 million, was 22.1 per cent lower at US$13.5 milion.

Gross revenue was 8 per cent lower at US$46.8 million versus a forecasted US$50.9 million.

For the period from its listing date on May 9 to Sept 30, revenue per available room (RevPAR) was US$101, 5.1 per cent lower than forecast.

"The variance in performance is primarily attributable to new supply impact in various markets. Supply headwinds were exacerbated with demand dislocations (e.g. Hurricane Dorian in September) and property management turnover in some instances," said ARA H-Trust.

"Nevertheless, the portfolio achieved an occupancy of 81.3 per cent, a testament to the appeal of our Hyatt-branded portfolio and affirmation of our upscale selectservice segment investment strategy."

The Reit's manager expects the distribution income for its forecast period in 2019, from May 9 to Dec 31, to be in line with its IPO forecast.

Units of ARA H-Trust remain unchanged at US$0.865 as at 9.08am.