ARA US Hospitality Trust started at Buy by UOB KayHian

U.S. one-dollar and five-dollar currency notes; taken September 2018.U.S. one-dollar and five-dollar currency notes; taken September 2018.

UOB KayHian started ARA US Hospitality Trust at Buy with a target price of US$1.15, pointing to its higher-margin niche of upscale select-service hotels.

Select service hotels don’t offer the full range of services provided by full-service hotels, making them a “sweet spot” for higher margins, faster growth and lower labor costs, UOB KayHian said in a note Monday.

ARA US Hospitality Trust has managed revenue per available room (RevPAR) of US$94, compared with its U.S. peers’ RevPAR of around US$82  last year, the note said.

“ARAUS is a pure play on upscale select-service hotels with a quality portfolio of 38 hotels under the Hyatt Place and Hyatt House brands,” the note said. It added that the trust has access to Hyatt’s World of Hyatt guest loyalty program, which has 16 million members, and its large reservations system and market platforms.

The trust plans to refurbish some of its hotels on a staggered basis to improve marketability and boost RevPAR, UOB KayHian said.

In addition, management plans to seek acquisitions to diversify the portfolio by geography and brand, the note said.

“It seeks to expand into under-represented markets, such as the western region of the U.S., and also selectively acquire other premium branded select-service hotels, such as Hilton and Marriott,” the note said.

UOB KayHian estimated a distribution per unit of 4.5 U.S. cents for the May-to-December period, and 6.8 U.S. cents for 2020.

The unit price was flat at US$0.87 at 2:44 P.M. SGT.

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