Asked by Anonymous
Asked on 04 Apr 2019
Now that Sandra has presented you the facts and figures of the IPO, perhaps I shall go deeper into what drives business of a Hospitality trust and how it applies to the context of Eagle Hospitality Trust (EHT).
The 2 factors of Revenue of a hospitality trust are occupancy and room rates. There are 2 main stakeholders in a hotel, mainly the owner and the operator. EHT in this scenario is the Owner whereas it will engage operators to operate the property to generate recurring income. Now that one understand how hotels are being operated, here's a SWOT analysis of EHT.
Brand it carries
If majority of the portfolio is being operated by less known brands, it will affect the occupancy of the hotel. In this case, EHT portfolio comprises of 20 properties being managed by Marriot, Hilton and Intercontinental Hotel Group (IHG) brands (https://www.theedgesingapore.com/us-based-eagle-hospitality-trust-swoops-singapore-listing). These 3 hotel brands are coincidentally the 3 largest hotel brands in the world. They are no stranger to running hotels and they too have very established loyalty programs consisting of tens of millions of members. A strong brand can also attain Economies of Scale with bulk purchasing of amenities / perishables in a hotel.
How does one hotel stand out from another besides it's branding? The answer is with its location. Holiday Inn Resort Orlando Suites - Waterpark, one of its property in its portfolio is strategically located within Disney World Orlando itself. Having a strategic location would also allow the trust to dispose off the property when capitital appreciation has been achieved.
Unique Selling Point
Offering a unique experience is also another way to entice guests to one's hotel. One can stay at a physical hotel building everyday but its not everyday that one can stay at a hotel that is based on a ship. Having Queen Mary in it's portfolio would certainly offer a different experience for travellers to California.
With hotels being rather dated, it is important to upkeep one's property with refurbishment so as to be on par with competitors around the area. Definitely a strength with almost 90% of it's portfolio having been renovated
With the entire portfolio of theirs situated in US, this may serve as a weakness especially with the many other hotel options / accommodation types travellers can select from which I will tackle under threats.
With the introduction of Online Travel Agents (OTAs) i.e. Booking.com and Online Review Sites i.e. Tripadvisor, one can compare across a list of hotels and sort them based on a set of criterias. A quick look at the mentioned properties in their portfolio revealed them bring ranked about 30-40% out of all the hotels located in that area. Therefore, the chances of one scrolling down all the way till this portfolio's property catches their attention is rather slim, unless one already had the idea of booking them as an accommodation.
It is not known what the EHT has plans for after raising raising the capital. But an opportunitity would definitely be portfolio diversification of its portfolio, geographically.
There are two sides of the coin on the impact of Airbnb on the hospitality scene. In Singapore, it's definitely milder due to regulations in place. However, there aren't any restrictions towards listing apartments for short-term stays on Airbnb and with the large availability of options, travellers may consider switching to other forms of accommodation therefore impacting the portfolio occupancy rate.
Increase in Supply
There are pipelines of hotels being built and this also poses as a threat when market gets further saturated.
EHT expects Revenue per Available Room (RevPAR) to grow by 14.5% in 2019. But looking at the table below compiled by STR, it does seem like a rather ambititious figure.
With occupancy rates of hotel at Orlando being at an average of 80% (overall portfolio occupancy - 73.6%) , it does seem that occupancy rates of EHT's portfolio's properties differ by quite a large amount.
Shall end it off on this note and I guess one has to wait till more data (entire portfolio, listing price etc.) is being obtained before one can really analyse the demand and price movement on this stock post-IPO. Hope this analysis has given you more light in making a decision when the prospectus is out :)
Eagle Hospitality Trust is aiming for US$575 million IPO in Singapore. The trust will have an initial portfolio of 18 hotels across the US, including Holiday Inn Resorts Orlando Suites, and Sheraton Pasadena. Should the IPO happen, Eagle Hospitality Trust will be the first pure US hospitality REIT to be listed on the Singapore Exchange. Here are some numbers to value Eagle Hospitality Trust.
DBS assigned the trust a fair value of US$750 million based on a price to book ranging from 0.9x to 1x. The trust is projecting a fair value dividend yield of 7% - 7.5% for 2019 and 7.3% - 7.9% 2020. The REIT's gearing ratio currently stands at 36%, lowering than the MAS limit of 45%. Eagle Hospitality Trust projected a 4.15$ distribution growth for 2019 which will be supported by its future acquisition of six hotels in 2019.
I've penned down my opinion below.
A follow up on some of the concerns: