ARA H-Trust H1 DPS falls 50.2% to US$0.00747
Its manager attributes this decline to higher financing costs as a result of interest rates maturing and borrowing costs rising
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ARA US Hospitality Trust (ARA H-Trust) posted a distribution per stapled security (DPS) of US$0.00747 for the first half ended Jun 30, down 50.2 per cent from US$0.01501 in the corresponding year-ago period.
Distributable income fell 50.1 per cent to US$4.3 million in H1 2024, from US$8.7 million in the same period last year.
On Wednesday (Aug 7), its manager attributed this decline to higher financing costs as a result of interest rates maturing and borrowing costs rising.
Some US$224 million worth of hedges that were entered into in 2019 had matured in February this year, and floating interest rates set in. The trust also made recent hedges amounting to US$119 million amid rising interest rates, added the manager.
The distribution will be paid out on Sept 27 after the record date of Aug 19.
Revenue inched down 2.4 per cent for the half-year period to US$83.9 million, from US$86 million in H1 2023. As a result, gross operating profit was down 3.3 per cent to US$29.6 million for H1 2024, from US$30.7 million the previous year. Meanwhile, net property income (NPI) decreased 4.4 per cent on the year to US$21 million, from US$22 million previously.
This decline was mainly due to interruptions from asset enhancement initiatives projects at four hotels – Hyatt Place Mystic, Hyatt Place Rancho Cordova, Hyatt Place Omaha and Hyatt Place Secaucus – said the manager.
The fall in revenue was also underpinned by disposals of two other hotels in September 2023 and March 2024, it added. As a result, the portfolio’s average occupancy declined 1.6 percentage points on the year to 67.3 per cent, while revenue per available room fell 1.3 per cent year on year to US$93.
Excluding contributions from the six hotels and on a same-store basis, revenue would have risen 2.8 per cent on the year. Meanwhile, gross operating profit and NPI would have also increased by 2.4 per cent and 2.2 per cent year on year, respectively.
The trust manager pointed out that rising interest rates and persistent inflation has weighed on price-sensitive consumers, resulting in lower hotel demand by the lower and middle-income households.
It also noted that the strong US dollar has led to more people travelling out of the country.
To mitigate the impact of rising rates, the trust said that it intends to use net proceeds from the proposed sale of two hotel assets to pare down bank borrowings and improve the trust’s gearing ratio, as well as increase its debt headroom.
In May, the manager announced its plan to sell Hyatt House Philadelphia Plymouth Meeting for US$11.3 million and Hyatt House Shelton for US$19.7 million.
As at Jun 30, ARA H-Trust’s aggregate leverage stood at 43.5 per cent. The manager expects average leverage to fall to 42.9 per cent after repaying its debt.
Looking forward, Lee Jin Yong, chief executive officer of the managers, is positive on the future prospects of the hospitality industry.
“Although occupancy decreased with the waning of leisure demand, we are seeing improvements in group and business travel activity,” he said. “Barring unforeseen circumstances, we remain cautiously optimistic that our operating metrics will improve, driven in particular by the recently renovated hotels.”
ARA H-Trust is a stapled group comprising ARA US Hospitality Property Trust and ARA US Hospitality Management Trust.
Stapled securities of ARA H-Trust were trading 14 per cent or US$0.04 lower at US$0.245 as at 10.24 am on Wednesday.
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