OVERVIEW AND
FINANCIAL REVIEW
Generally, investments will be made where such investments
are considered to be value-enhancing, yield-accretive or
have potential for capital appreciation, and feasible in the
light of regulatory, commercial, political and other relevant
considerations.
The objectives of M&C REIT Management Limited, as
manager of H-REIT (the "
H-REITManager
"), are tomaximise
the rate of return for the holders of H-REIT units and to make
regular distributions. The H-REIT Manager plans to achieve
these objectives through the following strategies:
ACQUISITION GROWTH STRATEGY
In evaluating new acquisition opportunities, the H-REIT
Manager will consider the need for the diversification of the
portfolio by geography and asset profile. Potential sources
of acquisitions are likely to arise from:
• H-REIT’s relationship with Millennium & Copthorne
Hotels plc ("
M&C
"), an international hotel owner and
operator listed on the London Stock Exchange with a
market capitalisation of approximately £1.4 billion as at
3 March 2016. H-REIT will be able to leverage on M&C’s
experience, market reach and network of contacts in the
global hotel and hospitality sector for its acquisitions.
In addition, H-REIT can seek partnership and
co-operation opportunities with M&C as it expands
globally.
• Opportunities arising from divestment of assets by
hospitality service providers who are increasingly
looking to free up capital for business expansion or
investment funds that have a finite period to dispose
acquired assets.
• Opportunities arising from divestment of assets by
owners or developers.
• Opportunities to acquire under-performing assets with
turnaround potential by implementing value-added
strategies such as re-flagging, management change and
asset enhancements.
CAPITAL AND RISK MANAGEMENT STRATEGY
The H-REIT Manager intends to use a combination of
debt and equity to fund future acquisitions and property
enhancements such that it is within the "Aggregate
Leverage" limit set out in the Property Funds Appendix.
The objectives of the H-REIT Manager in relation to capital
and risk management are to:
• maintain a strong balance sheet and remain within the
Aggregate Leverage limit set out in the Property Funds
Appendix;
• minimise the cost of debt financing;
• secure diversified funding sources from both financial
institutions and capital markets as H-REIT grows in size
and scale; and
• manage the exposure arising from adverse market
movements in interest rates and foreign exchange
through appropriate hedging strategies.
ACTIVE ASSET MANAGEMENT
The H-REIT Manager actively engages its master lessees,
leveragingonH-REIT’s economies of scale and its relationship
with M&C, which has extensive experience in the hospitality
industry, to maximise the operating performance and cash
flow of the assets. In addition, it seeks to implement various
asset enhancement initiatives to improve the assets' value
and competitiveness.
HBT’S STRATEGY
M&C Business Trust Management Limited, as trustee-manager
of HBT (the "
HBT Trustee-Manager
"), first activated HBT at
the end of 2013.
HBT may act as the master lessee(s) of H-REIT’s hotels if any
of the following occurs:
• It is appointed by H-REIT, in the absence of any other
master lessee(s) being appointed, as a master lessee of
one of the hotel assets in H-REIT’s portfolio at the expiry
of the lease term. The intention is for HBT to appoint
professional hotel managers to manage these hotels.
• H-REIT acquires hotels in the future, and, if there are
no other suitable master lessees, H-REIT will lease these
acquired hotels to HBT. HBT will then become a master
lessee for these hotels and will appoint professional
hotel managers to manage these hotels.
The HBT Group currently acts as the master lessees for three
of the properties in H-REIT's portfolio, namely Jumeirah
Dhevanafushi, Hotel MyStays Asakusabashi and Hotel
MyStays Kamata and appoints professional hotel managers
to manage these properties.
HBT may also undertake certain hospitality and hospitality-
related development projects, acquisitions and investments,
which may not be suitable for H-REIT.
The HBT Group has acquired the Cambridge City Hotel
(now rebranded as Hilton Cambridge City Centre) on
1 October 2015 as the acquisition was not suitable for H-REIT
due to adverse tax consequences that would have arisen
if H-REIT were to assume the target's specific structure.
The HBT Group has appointed Hilton to manage the hotel
since acquisition.
Junior Ballroom, Novotel Singapore Clarke Quay
3
Annual Report 2015
