Simons Trading Research

Author: simonsg   |   Latest post: Mon, 17 Feb 2020, 4:29 PM


Frasers Hospitality Trust - the Singapore Sling

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  • Frasers Hospitality Trust's 4QFYSep19 NPI increased by 2.3%; DPU of 1.17 Scts lower y-o-y due to absence of one-offs.
  • Singapore and UK portfolios reported 5.0% and 8.5% increase in RevPAR.
  • Portfolio valuation down 2.9% due to FX volatility as well as weaker outlook for Australian properties; gearing low at 35.1%.
  • Maintain HOLD with S$0.78 Target Price.

Maintain Hold and Target Price of S$0.78

  • FRASERS HOSPITALITY TRUST (SGX:ACV) reported DPU of 4.41 Scts (-7.3% y-o-y) for FY2019. The lower DPU was partly due to an absence of a one-off tax provision write-back recognised in 4Q18, as well as weaker performances from Australia and Malaysia. However, the Singapore and UK properties performed better in FY2019 and reported an increase in RevPAR of 1.3% and 9.2% respectively. See Frasers Hospitality Trust Announcements.

Bottoming Out of Singapore Hospitality Sector

FY2019 DPU of 4.41 Scts declined 7.3% y-o-y

  • Frasers Hospitality Trust's FY2019 DPU of 4.41 Scts declined 7.3% y-o-y partly due to absence of tax provision write-back recognised in FY2018. See Frasers Hospitality Trust Dividend History.

Lower distributable income

  • Lower distributable income on the back of weaker performance from the Australian and Malaysia portfolios. Overall portfolio RevPAR for Australia declined 2.9% y-o-y due to soft market conditions in Sydney and Melbourne.
  • The Westin Kuala Lumpur’s RevPAR declined by 2.3%, attributed to lower ADR and weaker F&B revenue. Similarly, ANA Crowne Plaza Kobe registered a slight 0.7% decline in operating profit due to higher operating costs.

UK portfolio registered healthy gains

  • All properties in the UK portfolio registered healthy gains in occupancy, resulting in portfolio RevPAR increasing by 9.2% y-o-y.
  • Higher occupancies and improved ADRs at the two Singapore properties led the 1.3% growth in RevPAR for FY2019.

Portfolio valuation fell marginally

  • Portfolio valuation fell marginally by 2.9% due mainly to weaker GBP, MYR and EUR. In local currency terms, only Australian properties posted a decline (-5.2%) in valuation due to challenging market conditions in Sydney and Melbourne.

Gearing remains low

  • Gearing remains low at 35.1% and cost of borrowing declined marginally from 2.6% to 2.5% y-o-y.

Bottoming out of Singapore and UK portfolios

  • Singapore portfolio registered 11.1% y-o-y increase in operating profit in 4Q19. This was attributed to increased operational efficiency and cost savings at both properties. Stronger demand from leisure and corporate travellers led to higher ADR and occupancy at above 90%. Singapore portfolio’s RevPAR was up 4.9% y-o-y.
  • All 6 properties in the UK reported growth in RevPAR of 8.5% y-o-y in 4Q19. Overall UK portfolio occupancy rose to 93.3% in the quarter.
  • In 4Q19, ANA Crowne Plaza Kobe registered a 6.0% increase in RevPAR due to a boost in occupancy and ADR.

Value to be found in off-market deals.

  • The low interest rate environment and liquidity in the market have significantly compressed yields of hospitality assets. However, Frasers Hospitality Trust believes that higher yielding assets can still be potentially found in the off-market space (cap rates at above 4%). Frasers Hospitality Trust continues to search for opportunities in Germany and Holland.
  • We expect organic growth within the existing portfolio to be driven by AEIs at selected properties, which will be funded by debt.

Where We Differ – Singapore to Lead the Way

  • In 4Q19, the Singapore portfolio reported higher occupancy of 92.5%. Going forward, the high occupancy rate and further improvement in ADR would lead to higher RevPAR. With the UK and Japan portfolios stabilising, improvement in the Singapore portfolio will lead earnings.
  • See Frasers Hospitality Trust Share Price; Frasers Hospitality Trust Target Price.

Potential Catalyst – Surprise From Australia

  • The weak AUD may attract more holiday makers to Australia towards the end of the year and improve occupancy in Sydney and Melbourne. There may be a surprise from the Australian portfolio given its prime location and competitive rates.

Source: DBS Research - 31 Oct 2019

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