SINGAPORE - Real estate investment group ARA Group is spinning off US$719.5 million ($978 million) of US hotels under the Hyatt brand into a business trust that it wants to list on the Singapore Exchange (SGX).

If the listing is successful, it will be the Singapore bourse's first hospitality trust focused purely on the United States market. It will also be the first new counter on SGX's Mainboard since the July 2018 listing of foodcourt operator Koufu Group.

The proposed ARA US Hospitality Trust will comprise US dollar-denominated stapled securities of ARA US Hospitality Property Trust (ARA H-Reit), which will hold the hotel properties; and ARA US Hospitality Management Trust (ARA H-BT), which will run the hotels, according to a preliminary prospectus that has been lodged with the Monetary Authority of Singapore. The pricing, amount to be raised and timing of the offering have not been set.

There will be a concurrent cornerstone offering with the planned initial public offering, with cornerstone investors identified as SingHaiyi's controlling shareholders Gordon Tang and Celine Tang; banks Bank of Singapore, DBS Bank, Credit Suisse AG and United Overseas Bank; and investment firm ICH Capital.

The business trust's initial portfolio comprises 38 hotels, consisting of 27 Hyatt Place select-service hotels and 11 Hyatt House extended-stay hotels across the United States with an appraised value of US$719.5 million. The hotels have a total of 4,950 rooms, with net property income of US$53.2 million in fiscal 2018 on a weighted average revenue per available room of US$94.

For the eight-month period from May 1 to Dec 31, 2019, the trust is projected to post net property income of US$42.3 million and distributable income of US$26.1 million.

For 2020, the net property income is projected to be US$60.6 million, while the total distributable income is forecast at US$39.8 million.

The hotels are well-maintained, the trust said, having undergone refurbishments with around US$55.2 million worth of capital expenditure since 2015, the prospectus said. This included the replacement of case foods and soft goods in the guestrooms and public areas, along with the upgrading of guest bathrooms to include walk-in showers.

There are also plans for US$14.7 million of property improvement plan (PIP) renovations and other capital expenditure expected in 2019. This will be funded from existing cash balances in the trust.

Of the 38 properties, 36 hold freehold land titles. The remaining two properties, Hyatt Place Lakeland Center and Hyatt Place Secaucas Meadowlands, have long remaining leasehold tenures of more than 50 years. This is assuming ARA H-Reit subsidiary PropCo renews the initial lease for each property on the same terms upon their expiry in 2023 and 2021 for five consecutive terms of 10 years each at no additional costs.

The prospectus added with rising growth of demand in the transient demand segment for travel, transient-oriented select-service hotels will benefit disproportionately, which the trust's initial portfolio falls in. It said that in fiscal 2018, the portfolio derived 82 per cent of its occupied room nights from transient demand, and is "well poised to continue capitalising" on the trend.

It added that within the select-service segment, upscale select-service hotels provide the strongest operating returns due to lower labour costs from not having an extensive array of facilities, services and amenities. This contributes to higher operating efficiency and profitability.

The overall leverage limit of ARA US Hospitality Trust is 45 per cent of its total deposited property.

ARA H-Reit is permitted to borrow up to 45 per cent of the value of its own deposited property or such permitted limited imposed under the property funds appendix from time to time. ARA H-BT has voluntarily adopted the same aggregate leverage limit.

As at the listing date, the prospectus said that ARA H-Reit is expected to have an aggregate leverage of 33.4 per cent, and gross borrowings of US$251.8 million. Through its US partnership, it will also have a loan of US$273 million from ARA H-BT.

The trust added that for the avoidance of doubt, as long as the ARA H-BT and ARA H-Reit are stapled, loans between them and their respective subsidiaries will not count towards their respective leverage.

DBS Bank is the issue manager for the offering. The joint financial advisers and joint global coordinators are DBS Bank, OCBC Bank and UOB, while the joint bookrunners and underwriters are DBS, OCBC Bank, UOB and Credit Suisse (Singapore).