FRASERS HOSPITALITY TRUST
ACV.SI
Frasers Hospitality Trust - 2QFY18 Results Of FHT In Line
- Results of Frasers Hospitality Trust (FHT) are in line with expectations.
- FHT’s overall portfolio saw a weaker performance, except for its Japan and Singapore portfolios. The Australia portfolio was lifted by Novotel Melbourne on Collins, but saw weakness in Sydney.
- Maintain BUY on FHT with unchanged target price of S$0.90.
- Maintain OVERWEIGHT on the sector.
STOCK IMPACT
- Results in line with expectations; maintain BUY with a target price of S$0.90. This is based on a two-stage DDM (required rate of return: 8.0% and terminal growth rate: 2.5%). 2QFY18 gross revenue and net property income declined 3.1% and 4.0% y-o-y respectively, due to weaker overall portfolio performance except for the Japan and Singapore portfolios. The results are in line with our expectations, with 1HFY18 DPU of 2.4233 S cents representing 47.6% of our full-year estimates.
- Australia portfolio sees weakness in Sydney properties; partly mitigated by Novotel Melbourne on Collins (NMOC). NMOC has ramped up well with RevPAR growth of 10.2% y-o-y this quarter. Management had made changes in running the property, such as reconfiguration of rooms, customer segmentation, and upgrading the beddings. The adjoining mall, which was under renovation and came on-stream, also had a positive impact on NMOC’s performance. Management believes that NMOC has the potential to be re-positioned as a five-star hotel eventually, but will not carry out such AEI works until they have exhausted their five-year guarantee on the gross operating-profit floor (with another three years remaining).
- Meanwhile, Sydney properties had been affected by softer corporate demand. Novotel Sydney Darling Square (NSDS) was also still affected by negative overhang of the renovation.
- Singapore performance led by InterContinental Singapore (ICSG); however, we see weakness in Fraser Suites Singapore (FSSG). ICSG has seen higher RevPAR, on the back of healthy ADR gains. The impending near-term challenges are the new supply in its micro-market, JW Marriot (already ramped up to c.70-80% occupancies) and Hotel Andaz, which may limit ICSG from raising room rates further (following its recent renovation). Although management expects visitor arrivals to continue its growth trajectory in 2018 (2017:+6.2% growth), majority of the new arrivals are from China and India. These travellers are typically mid-scale, and do not immediately benefit the luxury space where ICSG is operating.
- Fraser Suites Singapore (FSSG) saw lower ADR and occupancy, partly due to increased competition from private rental homes (which saw their minimum rental period cut to three months). In view of the changing competitive landscape, management has been lobbying with the URA to lower the minimum number of room nights (down from the current seven nights).
- UK portfolio. UK RevPAR was down 3.7%, mainly due to continued soft leisure demand (due to appreciation of the pound). UK performance was also dragged by adverse winter conditions (increased energy consumption by 33%) and higher staff costs (arising from increase in minimum wage rates). Going forward, management intends to diversify its UK clientele to include more corporates, although this may be difficult as most of its UK hotels (excl. Fraser Place Canary Wharf) are in leisure oriented parts of London.
- International portfolio. The Japan portfolio saw lower GOR (-3.2% y-o-y), but higher GOP (+3.5%) due to tighter cost controls to drive higher efficiencies, particularly in the F&B areas. The Malaysia RevPAR declined by 4.9% y-o-y, as a result of softer corporate demand from clients in the consulting business (ie BCG, McKinsey). Going forward, management intends to diversify their consulting share of clientele to reduce concentration risk. The Westin KL (TWKL) is also expected to face more near-term headwinds, due to the competition from the re-opening of JW Marriot and Ritz Carlton (which have undergone massive renovations).
- Aggregate leverage increased marginally to 33.1% (vs 33.0% in 1QFY18). Weighted average term to maturity of borrowings was 2.68 years. Interest rate was stable at 2.7% with interest coverage ratio at 5.2x.
Vikrant Pandey
UOB Kay Hian
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Loke Peihao
UOB Kay Hian
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http://research.uobkayhian.com/
2018-04-27
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