Acrophyte Hospitality Trust 3Q 2025 – Business & Operational Update: Key Takeaways for Investors

U.S. Economic and Lodging Market Overview

• U.S. Economic Growth Moderates: For 3Q 2025, U.S. GDP growth is forecasted at an annualized rate of 2.3%, supported by strong corporate earnings and resilient consumer spending. However, inflation has edged up, with the Consumer Price Index (CPI) rising to 3.0% year-on-year as of September 2025. The unemployment rate increased to 4.3%, reflecting a softening labor market due to government layoffs and cautious corporate hiring. The Federal Reserve cut the federal funds rate by 50 basis points (25 bps each in September and October) as inflation concerns eased, but labor market conditions weakened.
• Hotel Industry Faces Headwinds: The U.S. lodging market remained flat for the first nine months of 2025, with RevPAR (Revenue Per Available Room) unchanged at \$102 year-over-year. 3Q 2025 saw a decline in performance, with occupancy down by 1.5% and RevPAR slipping by 1.4%. Geopolitical tensions and policy uncertainties subdued business and international travel, contributing to these results.
• Muted Transaction Volumes: U.S. hotel transaction volumes continue to lag, reaching \$9.7 billion in 1H 2025—comparable to 1H 2024. Elevated interest rates have largely sidelined market participants, resulting in transaction market stasis. Interest rates are expected to decline in late 2025 into 2026, which may impact future transaction activity.

Portfolio Update and Disposals

• Slow Asset Sales: Acrophyte Hospitality Trust has only managed to sell 10 hotels over the past four years, with half of those sold in 2022 when the transaction market was stronger. Only one hotel was sold in 2023, three in 2024, and one in 2025, highlighting the challenging environment for asset disposals. The average sale price per room for these divestments was US\$73,582.
• Recent Disposals Cloud Comparisons: The sale of two hotels—Hyatt House Shelton (October 2024) and Hyatt Place Auburn Hills (September 2025)—has impacted year-over-year performance comparisons for both 3Q and the nine months ending September 2025.

Key Portfolio Performance Metrics

3Q 2025 vs 3Q 2024

• Number of Hotels: 32 (down by 2 YOY due to disposals)
• Occupancy: 73.7% (down 0.9 percentage points YOY)
• Average Daily Rate (ADR): US\$140 (up 2.6% YOY)
• RevPAR: US\$103 (up 1.5% YOY)
• Gross Revenue: US\$43.1 million (down from \$45.5 million)
• Gross Operating Profit (GOP): US\$15.2 million (down from \$16.7 million)
• Net Property Income: US\$11.1 million (down from \$12.8 million)
• GOP Margin: 35.2% (down 1.5 percentage points YOY)
• Adjusted (Same Store) Performance: When adjusted for disposals, gross revenue and profits were still lower YOY, suggesting that ongoing renovations, softer pricing, and rising expenses are pressuring the portfolio.

9M 2025 vs 9M 2024

• Occupancy: 69.9% (down 0.8 percentage points YOY)
• ADR: US\$139 (up 1.1% YOY)
• RevPAR: US\$97 (flat YOY)
• Gross Revenue: US\$121.2 million (down from \$129.4 million)
• GOP: US\$41.9 million (down from \$46.3 million)
• Net Property Income: US\$29.1 million (down from \$33.8 million)
• GOP Margin: 34.5% (flat YOY, rounded)
• Adjusted (Same Store) Performance: Shows similar trends—minor improvement in margin, but overall revenue and profitability are down, confirming the challenges from ongoing renovations and cost pressures.

Capital Management – Leverage and Interest Coverage

• NAV per Stapled Security declined from US\$0.73 (Dec 2024) to US\$0.69 (Sep 2025)
• Aggregate Leverage Ratio increased from 41.6% to 42.6%
• Net Gearing rose from 39.1% to 40.1%
• Total Debt Outstanding: US\$324.5 million
• Weighted Average Debt Maturity: 1.5 years
• Average Cost of Debt: 6.5% (improved from 6.7%)
• Percentage of Debt Hedged to Fixed Rates: 50.5% (up from 47.5%)
• Interest Coverage Ratio: 1.7x (down from 1.8x)
• Sensitivity: A 10% decrease in EBITDA or a 1% increase in interest rates would reduce the ICR to 1.5x, the MAS regulatory minimum.
• Regulatory Note: MAS revised the Code on Collective Investment Schemes, setting a minimum ICR of 1.5x and a single aggregate leverage cap of 50% effective November 2024. Acrophyte is currently compliant but close to these limits.

Capex and Portfolio Rejuvenation

• Significant Capex Outlays: Capex is forecasted at US\$30.5 million in 2025, up from US\$29.0 million in 2024 and US\$16.7 million in 2023. Brand-mandated renovations are a key driver of this increase.
• Renovations Update: Two hotels (Courtyard San Antonio at The Rim and Residence Inn San Antonio at The Rim) completed renovations by 3Q 2025. Five more hotels are scheduled for brand-mandated renovations starting November 2025, with projects continuing into 2026.
• Purpose: These renovations are aimed at preserving competitiveness, maintaining brand compliance, and uplifting the value and profitability of higher performing assets.

Strategic Outlook and Risks

• Softening Market Conditions: The Trust faces headwinds from moderating U.S. economic growth, persistent labor market weakness, and subdued lodging demand due to economic and geopolitical uncertainty.
• Cost Pressures: Rising expenses and softening pricing are squeezing operating margins, despite ongoing efforts to optimize the portfolio and control costs.
• Portfolio Optimization Strategy: Management continues to pursue the sale of non-accretive assets to generate capital and reinforce portfolio resilience.
• Regulatory Compliance Risk: The Trust is nearing regulatory leverage and interest coverage thresholds, which could limit financial flexibility or require further asset sales if conditions deteriorate.
• Interest Rate Sensitivity: The Trust remains sensitive to further increases in interest rates or declines in EBITDA, which could push leverage and coverage ratios closer to regulatory minimums.

Potential Share Price Impacts

• Performance Deterioration: Declines in revenue, profitability, and NAV per stapled security may weigh on investor sentiment.
• Leverage and Interest Coverage: Proximity to regulatory leverage and coverage minimums could increase perceived risk and funding costs, potentially exerting downward pressure on the share price.
• Asset Sales and Capex: The slow pace of asset sales, combined with significant capex for brand-mandated renovations, may limit near-term cash flow and distributions to shareholders.
• Renovation-Driven Upside: Successful completion of renovations and a recovery in U.S. lodging demand could offer upside if the Trust can capitalize on improved asset performance and any rebound in hotel transaction markets.

Conclusion

Acrophyte Hospitality Trust is navigating a challenging U.S. hotel market marked by economic uncertainty, subdued transaction activity, and operational headwinds. While brand-mandated renovations and portfolio optimization efforts may support long-term competitiveness, near-term risks from leverage, regulatory constraints, and declining performance metrics could impact share value. Investors should closely monitor the Trust’s execution on asset sales, capex projects, and financial management as the market environment evolves.

Disclaimer: This article is for informational purposes only and does not constitute investment advice or an offer to buy or sell any securities. Investors should conduct their own due diligence or consult professional advisors before making investment decisions. The information is based on the latest available disclosures from Acrophyte Hospitality Trust and may be subject to change without notice.

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