Acrophyte Hospitality Trust: Optimising for the future, DPU on growth path
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Optimising for the future
FY24 DPU c.3% above our expectations. ACPH reported a 2H24 distribution per unit (DPU) of 0.848UScts, bringing FY24 DPU to 1.595UScts, surpassing our estimate despite a lower payout ratio of 90% (from 100%). However, this marked a 53.4% decline y/y from 3.430UScts in FY23, primarily driven by higher finance costs (+44.1% y/y), rising insurance costs (+10.4% y/y), portfolio rebalancing with three hotel divestments, and asset enhancement initiatives (AEIs) at six properties. Gross revenue came in at USD168.8mn (-3.8% y/y), while net property income (NPI) declined 7.0% y/y to USD44.3mn, resulting in lower operating margins of 26.3% in FY24 (-0.9ppt y/y).
Gearing remained elevated at 41.6% in FY24 (+0.1ppt y/y) and the average cost of debt increased to 6.7% (+1.9ppt y/y), due to a rise in underlying interest rates as lending margins have remained unchanged. Consequently, interest coverage ratio (ICR) declined to 1.8x as at 31 Dec 2024, from 2.7x as at 31 Dec 2023, and we will be closely monitoring it. Nonetheless, successful refinancing activities have extended debt maturities to 2.2 years (from 1.5 years in 3QFY24), mitigating short-term liquidity risks.
Active portfolio management strategy and AEIs to enhance long-term value. Management remains focused on optimising the portfolio by aiming to divest the bottom quartile of assets, particularly those in weaker markets, requiring significant capital expenditure, or where capital costs outweigh valuations, and it has been delivering positive results. On a same-store basis, portfolio valuation rose 2.2% y/y to USD728mn.
Meanwhile, we expect to see stronger pricing power with the completion of AEIs at six hotels in FY24. Management has earmarked on AEIs for another four Hyatt House hotels and one Hyatt Place hotel in 2025, aiming to further elevate the performance of these already high-performing properties and create value. As a result, the 90% payout ratio will be maintained to fund these renovations and upgrades, especially given that costs are rising due to higher construction and labour expenses.
DPU on growth trajectory; maintain BUY. We raise our FY25F DPU estimate slightly, as we assume divestment proceeds are used to pare down debt with high interest costs, partly offset by the lower payout ratio of 90%. While elevated interest and insurance costs remain major headwinds, this will be mitigated through capital recycling efforts and improvements in operating metrics (boosted by AEIs). We anticipate that DPU has reached an inflection point, and our FY25/26F DPU forecasts are at 1.67/1.78UScts, translating to forward yields of 7%-8%. Maintain BUY with unchanged TP of USD0.25.
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