I had some time this morning so I thought I made a trip down to Star Vista to attend Ascott Reit AGM before going back to the office in the afternoon. I was back vested in this company only recently (Link here) after divesting years ago.
The place was easily accessible and I arrived earlier than expected, so I toured around the Metropolis (owned by Ho Bee – vested) to look at its surroundings. It’s an amazing office building with many office crowds in the morning, perhaps there would come a day where that would be my office in the future – ok stop dreaming on.
With a few minutes preceding the meeting, I registered and received a $20 Capita voucher in return which I immediately used it for lunch and some Korean snacks thereafter. For fellow investors who has the same voucher, do remember that it is only valid for a month, so please use them as fast as possible. I know this because I was talking to a fellow investor in the room who told me that his voucher expired when he attended last year AGM.
Anyway, back to the meeting, I was pleasantly pleased on how much insights I managed to get from the meeting which I will summarized later below. Obviously, some of the fellow investors have voiced similar concerns that I have so I’m glad that I attended the meeting learning even more operational insights from the management. The CEO, Ronald responded pretty well for the questions being raised overall though this was clouded from the Chairman who tried to give very general answer throughout the meeting.
In any case, I’ll try to summarize all insights I get from the AGM for interested investors, but please pardon if I’m making any mistakes from my quick scrambling on the paper.
1.) Ronald went through the presentation highlight which was self-explanatory but there were things that caught my attention.
Based on the presentation, the company’s portfolio have 46% (30% Master Leases and 16% Management Contract with minimum income support) which was deemed as “stable income”. This means that regardless of how the asset performs operationally, Ascott was always going to collect these fixed “stable income”. This leads to the stability of the gross income which translates into DPU for unitholders. E.g, The assets in France, Belgium and Spain are under these category so regardless of whether there are uncertainty in these places, the company is always able to receive the same stable income every year.
In terms of the SG market geographically, the service apartment rev/par are holding up well though the slowdown is in the short stay segment which competes directly with over supply of hotels. In particular, Somerset Liang Court was the main apparent one affected.
The management also reiterated that the 3 top currency they are hedging is GBP, EUR and JPY simply because these 3 made up more than half of the gross income. The rest are not hedge because either it was a more expensive exercise or they have a natural hedge against the currency itself through the assets and borrowings from that aspect.
2.) The second question was pertaining to the concerns which I have also raised earlier in my post.
In an ideal situation, the company is embarking on an aggressive plan to increase its AUM to $6B by next year. They are currently on $5.2B at the moment after their latest US acquisitions. This means that we would continue to expect the company to tap on capital funding, either in the form of debt or equity to fund these acquisitions. If we’ve taken a look across the past 5 years, while it is evident that AUM has been growing, DPU has not been growing in tandem as much as what the shareholders would like and this has upset many shareholders.
The management defended by immediately pointing factors relating to market forces, where they are not able to control the demand and supply. However, they assured investors that every acquisition considerations are being made with an accretive return in mind. Even if they are not immediately accretive to the DPU, it will come in the form of potential increased market value where they are able to divest at a higher price later on after redevelopment.
The Finance VP also quickly stepped in to state that there was a one off adjustment made to repay back the financing loan in 2014. Without the one off, 2015 DPU would have trend up.
My thoughts after hearing this was that the management knows of these issues but are continuing to be adamant in meeting their AUM goals, by hook or crook. I think as a shareholder, we just need to be careful if one day they’d ask for rights issue. Given the recent placement and successful MTN issuance, I think we can rest on our shoulders for now.
3.) There was a shareholder who asked about the importance of China’s tourism play, both inbound and outbound, and what is the company’s strategy in view of this.
The management was apparent on the importance of China’s tourism play, which explains why China is the number one concentration in their overall portfolio with 17% assets in the country. The CEO also added that China tourism inbound within the country amounted to over 4 Billion annually while outbound there are over 5 Billion.
In fact, as part of the strategy in acknowledging this, they have tied up a partnership with China’s local agency – “Tudra” and “Alitrip” in bringing more customers both inbound and outbound into Ascott properties for short and long term stay. The result of this implementation would only be visible fully by 2H of 2016.
4.) There was a shareholder who asked about the competitiveness of the Singapore hospitality market and how the recent market glut has gloomed the rev/par downwards.
The management reiterated again that their business model are mainly to focus on the extended stay segment since this is a rather untapped market than pure hospitality play where there are supply glut in the hotel sectors. Corporate traveler usually stay between 1 to 3 months and these segments make up 80-85% of the overall segments.
The management also conceded that even though they are able to attain higher rev/par for short stay travelers, the risk is also higher because of the competition in the local market.
Having said this, the management is very confident that 2016 will remain a stable year in terms of the SG market and they are already looking into an acquisitions on the Cairnhill property to be completed by 2017.
The overall session was good and I think it gives me a better insight on what the strategy of the company is in more detail and any latest updates on their operational day to day. Given that I am buying this mainly for its income, I will continue to hold on to my holdings.
Ascott will be releasing their results tomorrow, Friday end of business.