ARA US Hospitality Trust: 1H2023 Update

ARA US Hospitality Trust has announced its 1H  results without any major surprise.

Summary

• Downward Revaluation of US$6.7million (approx -1%)
• Revenue Growth due to Higher Occupancy Rates in its Hotels
• Leverage Ratio Grew to 39.7%
• Dividends grew by 2% and now stands at 1.5 US cents per half a year (Dividend Yield of 8.5% at current price of 36.5 US Cents)

Business

The business of ARA US Hospitality is that it runs the hotel chains of the lower priced ranged hotels for the luxury brands of Hyatt, Mariott and Hilton in USA.

It has 37 hotels, at the 4 stars range and unitholders enjoy the dividends generated from these 37 hotels.

Prospects

US tourism has not recovered to its pre-covid levels and the hotel occupancy is still trending higher to 68.9% now. Overall, the occupancy of the lodging industry in USA is still 2% lower than where it was in COVID. Hence, for ARA US, it shows there is still some room of growth in occupancy which leads to more revenue and dividends.

Personally, I think ARA US will be able to grow to 1.6 US cents per dividend per half a year. 

Debt Profile

ARA US trust's cost of debt has risen tremendously due to the rising interest rates (from 3.8% to 4.6%). I expect it to rise further to the 5.0% mark which will erase all Gaines made by its higher occupancy and improved hotel room charges. This means diviends will remain constant.

I am not worried about the short maturity of its debts because refinancing it now will yield a loan of about 5.5% which is not far from its current servicing interest rates. However, when the US Fed starts to lower interest rates, like all other US REITs, I expect dividends to grow fast which is good news for dividend investors.

All in all, ARA US Hospitality is a decent propect to own, a trust of a leverage ratio with sufficient buffer, 8% dividend yielder with prospects to grow its dividends further. Similar to other US REITs, there are definitely a league above the Singapore REITs and USA is now a good place to own investments for Singapore dividend investors.